Gold Forecast – Legitimate Breakdown or Post-Fed Fakeout?

As I write, gold is below the $1800 level, and I can feel panic in the air. Anyone overleveraged has either been stopped out or is seriously contemplating selling. This is exactly how bottoms form. The big trader’s (banks) run stops forcing the little guy to liquidate, thus creating excess liquidity to enter new positions. I have seen this happen hundreds of times.

KEY LEVELS

Is the current decline in gold a legitimate breakdown, or is this just another post-Fed fakeout? I’m guessing the latter, but we should know for more by Friday’s close. Below are the levels I will be monitoring.

GOLD DAILY FUTURES

Gold (currently $1784.70) is below the $1800 level after yesterday’s Fed announcement. If prices begin to stabilize over the next 24-hours and finish the week above $1800, then I think this was just a post-Fed fakeout. But if gold continues to weaken and finishes the week below $1775, then the breakdown is probably real, and we could be in for a more severe correction.

I’m always skeptical of the price action surrounding a Fed decision. More times than not, short-term trends in precious metals reverse on or just after an announcement. And since gold has been correcting since the June 1st high ($1919.20), I think the odds are beginning to favor a near-term bottom.

On a positive note, silver prices are holding up well, relative to gold, and I continue to look for a breakout above $30.00 in July.

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For regular updates, please visit here.