Gold prices bounced back above $800 an ounce yesterday. According to Indian commodities news site Commodity Online, investors bet that jewelers will purchase cheaper supplies of the metal after the dollar consolidated recent gains.

Gold futures for December delivery rose $13.60 to $805.70 an ounce on the Nymex. Silver also traded higher, hitting $13.217 an ounce.

Lee Lowell at The Smart Profits Report reckons the metals are extremely oversold. He expects gold and silver to trend higher if the dollar sells off…

At the moment, both silver and gold are taking their cues from the oil and dollar markets, just like everything else.

Last week, for example, silver endured a nasty intraday selloff of more than $2 an ounce. Although it bounced during the day, much of the damage held. A $2 move in silver is equal to a $10,000 change in equity - huge for one day’s worth of trading. And this is on top of the large drop it endured the two weeks before that.

This mass liquidation means silver really is extremely oversold from a technical perspective. If the dollar starts to sell off and the oil market starts to move back up, we could possibly see silver have a very nice rebound.

Because both gold and silver tend to move in tandem, the gold market has dutifully followed silver downward.

The yellow metal topped out near $1,000 an ounce back on July 15 and has since shed $200. That’s a $20,000 move in equity - and yet another big swing.

Where to from here? Well, just like silver, gold is way oversold and could also see an impressive bounce if investors start to pile in.

Source: Commodities Take More Hits, but Fay Could Change That