Odd Looking Cup and Handle in the Gold Chart

Back in early January, I thought I spotted a cup and handle formation in the daily gold chart. However, the pattern broke down almost immediately after I wrote about it, and it wasn't until mid April that things started looking optimistic again, with a double bottom.

The bottom has since developed a handle with much resistance at the $1800 level, which leads me to think that we're faced with a cup and handle formation, where the cup is a little unusual in that it has two bottoms rather than one. If so, we can expect a strong rally in the gold price once the $1800 level breaks. With the $1800 level being $125 above the bottom, we should soon see gold trading at $1925, up $125 from current resistance. That's a healthy 7% gain, leaving gold marginally up on the year.

If this happens, we'll end up with a cup formation in the weekly chart, with a rim at the $1925 level, up $250 from the double bottom mentioned above. With resistance likely at this level, we may see another handle, possibly breaking resistance some time this fall. That will in turn send the gold price up another $250 by year's end, which would be a new all time high at $2175.

That would in turn complete the ten year cup and handle formation in the monthly chart, with a likely move up to $3000 by the end of next year.

While this is a lot of speculation, it illustrates the strength of the current state of the gold chart. There's tremendous support to the downside, and a whole range of cascading signals to the upside. We're looking at a risk of perhaps 5% further decline, countering a potential of almost 100% gain over the next 18 months. Anyone out there looking for bargains should take note and buy at least some gold.

Rococo Cup with handle

By Vincennes Porcelain (France, circa 1739–1756), Francois Binet (France, active 1750-1775, born 1731) - Image: http://collections.lacma.org/sites/default/files/remote_images/piction/ma-31852871-O3.jpg Gallery: http://collections.lacma.org/node/229367 archive copy, Public Domain, Link