I guess we'll see in the next few days if the $1.54 level holds....

I guess we'll see in the next few days if the $1.54 level holds. I think it will hold because gold will not go much lower. Oil will (short term) but gold will not follow. The money coming out of oil will most likely go into gold for safety.

Gold bulls are popping with enthusiasm about the post-FOMC recovery in gold prices.

They should be.

After breaking through $920, the market almost shot clean through the May high of $940, staring the reversal point at $950-960 right in the face. The chart bias has turned bullish. I would expect to see support hold above the $900-920 level if the market were to backfill over the next few days – to validate the bullish outlook. But it’s not just technical. The market is doing all the right things, fundamentally.

It has realized that the Fed didn’t really mean what it said, and if it did, it isn’t all that, anyway.

The focus of the debate is shifting to areas that make the Fed uncomfortable: The Dow failed to breach 13,200 on the last run and the inflation story is heating up, despite ongoing cracks in the US economy.

These things are driving gold now.

What the Fed didn’t anticipate was that the oil price rise would be so sticky that it would embolden the inflationary psychology with or without gold. And it cannot afford to lose control over bond yields.

On the other hand, it cannot afford to tighten.

It can only try to talk down inflation expectations.

If Bernanke wants to survive long enough to secure another term, he’s not going to challenge the status quo, and the status quo is not willing to accept the kind of austerity package necessary to contain or defeat inflation. The Fed is damned if it does and damned if it doesn’t.

This means that prices will continue to rise until outright fear of inflation exceeds all others.

That’s why gold has the potential to catch fire here. Watch gold prices double over the next year. This may well be your last chance to buy the metal below $1,000 per ounce.