Gold Gets Ready to Make Its Move

NEW YORK ( TheStreet) -- Gold is trading higher again today, with futures for April delivery up $9.70 per ounce at $1593.30.

Gold is benefiting as a safe haven as the prospects of another Italian election weigh on markets. The potential of an anti-austerity party taking control and what it might do to the euro are definitely a cause for concern.

In addition, the U.K.'s credit rating was downgraded on Friday by Moody's and, as a result, the pound has been under pressure since then. The bottom line is: The eurozone debt crises is rearing its ugly head.

As if these developments weren't enough, automatic spending cuts slated to take effect in the U.S. on March 1 have investors and traders on edge as well. It certainly now looks as though the stock indices have put in a near-term high. Bonds and notes rebounded furiously yesterday, which is indicative of the "risk-off" mentality that has come into play recently.

The dollar has maintained strength, while the euro continues to head lower, approaching the key 1.30 area.

Gold may have more upside to go. In addition to the factors listed above, gold had become seriously oversold on a short-term technical basis. It seems as if everyone jumped on the "short" bandwagon. That could indicate that a squeeze is on and, as more of those shorts are squeezed out of the market, prices could easily test the mid-channel area or even the breakdown area of around $1,640. First and foremost, let's see if gold can close above the psychologically important $1,600 level today. That would, in my opinion, set the stage for continuing upside momentum.

Perhaps also helping the gold bulls this week will be Fed Chairman Ben Bernanke's testimony before Congress. It is widely expected he will try to clarify some of the issues that were detailed in last week's release of the Fed minutes.

Those minutes showed concern by some members of the Fed about the ongoing risks associated with continuing monthly asset purchases. Perhaps more importantly, there did not appear to be any consensus by the Fed regarding how they should proceed in removing the stimulus. The notion of the punchbowl being removed obviously spooked investors.

I would think Bernanke will try to calm fears about that specific issue during his testimony and reiterate that the Fed's accommodative stance will continue until it is no longer deemed necessary. I do not think we are there yet -- and, personally, I don't think Bernanke thinks we are there yet either. We'll see.

Should he emphasize that removal of stimulus at this point might be premature, there is the potential for the greenback to let its foot off the accelerator a bit. Should that happen, it might help pave the way for higher gold prices in coming sessions. As I've said before, a good old-fashioned short squeeze can be one of the most vicious and powerful rallies that a market can muster. It looks to me like such a squeeze is currently under way in gold.