Is It Tea Time for Gold?

With all of the tea bag parties going on, I thought I would take a look at gold’s technical picture and see if it was tea time yet for gold.

Cup and handle patterns are one of the most bullish set ups for technical analysts and can signal an explosive move to the upside. As the stock comes up to test the old highs, the stock will incur selling pressure by the people who bought at or near the old high. This selling pressure will make the stock price trade sideways with a tendency towards a downtrend for four days to four weeks… then it takes off.

I view technical analysis as just another tool in a trader’s arsenal and not the end-all indicator of future price movement. That being said, the chart for gold is very closely resembling a cup and handle pattern. It is admittedly concerning that the formation does not have more of a “U” shape bottom, but precious metals rarely trade so smoothly. I discount the importance of having a perfectly-shaped “U” bottom with gold as extreme volatility is inherent to this sector. The chart isn’t quite as sharp as a “V” shaped bottom, as the cup bounced up and down from August through December of 2008, providing ample time for the necessary consolidation phase.

click to enlarge

We will now be looking for gold to bounce off strong support around $870 and make an advance for $925. It the price breaks $925, it is expected that gold will quickly continue above $1,000 and make new highs in short order. The third time should be a charm for the important $1,000 resistance to turn to support.

On the down side of things, if support at $870 does not hold, gold could easily fall back towards $800. At the moment, the GSB Portfolio is largely out of precious metal stocks and into cash and a few non-commodity positions. There is no point in having your money at risk until the current chart is resolved one way or another. I am willing to miss the first move up towards $925 as I believe it will be only a small part of the larger move to $1,200 and beyond.

Comments

[sjgold:]

thanks....charts are looking good but we (gold bulls) need to start to get longer and press the shorts to cover here...

Apr 22 06:22 AM

[Peter Cooper:]

Absolutely with you all the way on this, always difficult to get the timing exactly right but this is looking great, see:
arabianmoney.net/2009/.../

Apr 22 08:23 AM

[doubleguns:]

Having NOTHING in gold seems to be a very, very risky position. I would think BY NOW everyone would have an idea that 10-20% in gold was just prudent.

We had the 87 crash, the dot com bust, 9/11 and now this great recession. Whats next I do not know but I am not putting my head in the sand and hoping for no more disasters. Ones coming, in fact many more will but we dont know when. Gold is that parachute for the day the engins quit on your investment airplane.

100% out of PM's seems imprudent overall and borders on foolish in this environment since its not over. Concern for short term profits at the expense of long term security?

Apr 22 08:41 AM

[yellowhoard:]

As a trader, I'm with the author. I'll wait for resolution.

However, if I were a long term investor with no gold holdings, I'd be buying with both fists right here.

It might not ever be this low again.

Apr 22 09:08 AM

[billyboy54:]

Almost solely due to my gold holdings, I have managed to stay above water on my portfolio, since Dec 07, while friends have lost 30-50% following their advisor's advice to be "prudent."

I subscribed to Harry Schultz's newsletter last year for a brief time, and he advised AT LEAST 30% of the portfolio in gold and gold stocks going forward.

I have added to my positions all year.......and have no intention of selling any time soon.

Thanks for the encouraging article.

Apr 22 09:14 AM

[History Buf...:]

This whole market is redefining a lot of terms. It used to be you were considered a goldbug if you had 10% of your holdings in precious metals. Now I think you would have to have 75% to rate that label.

I'm still waiting for the silver coins I ordered to show up in the mail!


On Apr 22 08:41 AM doubleguns wrote:

> Having NOTHING in gold seems to be a very, very risky position. I
> would think BY NOW everyone would have an idea that 10-20% in gold
> was just prudent.
>
> We had the 87 crash, the dot com bust, 9/11 and now this great recession.
> Whats next I do not know but I am not putting my head in the sand
> and hoping for no more disasters. Ones coming, in fact many more
> will but we dont know when. Gold is that parachute for the day the
> engins quit on your investment airplane.
>
> 100% out of PM's seems imprudent overall and borders on foolish in
> this environment since its not over. Concern for short term profits
> at the expense of long term security?

Apr 22 10:03 AM

[Jason Hamlin:]

Thanks for the comments.

Agreed. And to clarify, I always maintain a core position (10-20% of total portfolio) in physical metal, but swing trade in and out of mining stocks. It has been a profitable strategy over the past 5 years as I have been able to outperform the gold price and the HUI consistently. Buy on dips, sell on rallies.

I also put a considerable amount of research into analyzing junior miners and near-term producers, which far outperform the majors when rallies take place and can go ballistic on a new discovery or takeover.

www.goldstockbull.com

Peace and prosperity.

On Apr 22 08:41 AM doubleguns wrote:

> Having NOTHING in gold seems to be a very, very risky position. I
> would think BY NOW everyone would have an idea that 10-20% in gold
> was just prudent.
>
> We had the 87 crash, the dot com bust, 9/11 and now this great recession.
> Whats next I do not know but I am not putting my head in the sand
> and hoping for no more disasters. Ones coming, in fact many more
> will but we dont know when. Gold is that parachute for the day the
> engins quit on your investment airplane.
>
> 100% out of PM's seems imprudent overall and borders on foolish in
> this environment since its not over. Concern for short term profits
> at the expense of long term security?

Apr 22 01:01 PM

[optionsgirl:]

Looking at the gold chart's low on 11/13/08 of $710 up to the high on 2/20/09 of $1008 would make the 50% retracement around 859, we haven't quite gotten there yet. I wouldn't have interpreted this chart as
a cup and handle. To me, it looks like a bearish double top, with a wide channel between 866 and 902. To me, what looks like support in March at the 902 level looks like resistance now.

Apr 22 01:08 PM

[Jason Hamlin:]

Some people see a double top and predict a fall. Others see it as a cup and predict a boom. If you look at the charts long enough, you can see just about anything.

If it does not rally to $925 and selling accelerates, it could prove to be a double-top. The chart is unresolved at the moment, but the point is that an explosive move can be expected in either direction (moreso to the upside in my opinion) depending on how the chart resolves.

Cup and handle patterns often look like this:
stockcharts.com/school...


On Apr 22 03:57 AM Freya wrote:

> Cup? Handle? Where does the Cup begin and why does the Handle look
> like a Flag?
>
> The uptrend line from the Oct/Nov lows appears to have been broken.
> Why haven't you extended it like you did on the left. What does that
> by itself mean to you?
>
> Better yet, why not a Double Top?

Apr 22 01:15 PM

[auto44:]

William O'neil Investors Business Daily. Smart Man.try reading him.

Apr 22 01:53 PM

[capt Brian:]

I see a double top too, but on looking at all charts, hourly weekly minute etc, there is no real double top to be seen. ON the one hour chart, you could give a case for a double top, but I say it is resistance, I sure hope gold drops here, I am not fin'd buying . my sourse has dropped from 1.39 over spot for silver, to .99 cents over, must be pleanty of supply hitting the mkt gold prices are holding their spread as well as Plat and Pall,

Apr 22 02:19 PM

[Roger Knights:]

"why does the Handle look like a Flag?"

If it's a flag, then the implied target is 1150. Sounds good to me.

Apr 22 02:37 PM

[Mayascribe:]

Peter: I have an entire Quote Media page dedicated to nothing but mining stocks (about 50). Watching the many gold stocks I follow daily, I just don't see the upward movement neccessary for your prediction that gold will attain $1000 by this weeks end.

I own about 10 gold mining stocks, and I dearly wish you are right. But I don't see it; I don't see the shorts covering, yet.

The way I'm looking at the charts is that gold will go sideways or drop a bit from here, but starting in May, or even next week, I think gold will begin another climb.

This, in my opinion, will be due to the over bought financials. When they begin dropping again, that will trigger the next gold rally. A couple of the tell signs of this coming is that: a) California foreclosures have spiked hugely, b) the second largest mall developer in the country just went bankrupt, c) the dollar is showing faint signs of weakness, d) The big financials quarterly reports were fabulous, but when you look at how they made these billions, you learn that a huge percentage of their profits were through their brokers trading this market up, e) the combination of the government's threat to dilute the common shares with their TARP money likely would put downward pressure on the big banks...

And, f) if I know this, than the hedgey shorters know this, too.

My thoughts are that gold will spike, but it won't reach $1000 until May. But the rise is coming, not do to the lame near-term inflationary angle, but more because of how gold is a safe haven in a down market, combined with how now it's almost common belief that everyone should have a little gold in their portfolio.

Best to all!

Apr 22 05:40 PM

[capt Brian:]

Reading him, is one thing, following him is another. like Vector vest gezzo try to keep up...


On Apr 22 01:53 PM auto44 wrote:

> William O'neil Investors Business Daily. Smart Man.try reading him.

Apr 22 05:57 PM

[Francis Sch...:]

I expected to see this formation called "A double Top". Take some time and look at charts of Gold in other currencies: British pound, Euro, Aussie, Swiss Franc, South African Rand, Iceland Krone,...Indian Rupee. The dollar is loosing its position as reserve currency. Hence the price of Gold (and also other commodities) is more and more made in other currencies.


On Apr 22 01:15 PM Jason Hamlin wrote:

> Some people see a double top and predict a fall. Others see it as
> a cup and predict a boom. If you look at the charts long enough,
> you can see just about anything.
>
> If it does not rally to $925 and selling accelerates, it could prove
> to be a double-top. The chart is unresolved at the moment, but the
> point is that an explosive move can be expected in either direction
> (moreso to the upside in my opinion) depending on how the chart resolves.
>
>
> Cup and handle patterns often look like this:
> stockcharts.com/school...
>

Apr 22 07:05 PM

[Francis Sch...:]

Looking at the long term chart of $-gold, the uptrend is 'not' broken. What we did have, is an ABC correction (or a mid-wave correction). Such a correction has the shape of a huge UP FLAG. Candle charts do not show this clearly. Better look at Points and Figure charts.


On Apr 22 03:57 AM Freya wrote:

> Cup? Handle? Where does the Cup begin and why does the Handle look
> like a Flag?
>
> The uptrend line from the Oct/Nov lows appears to have been broken.
> Why haven't you extended it like you did on the left. What does that
> by itself mean to you?
>
> Better yet, why not a Double Top?

Apr 22 07:08 PM

[Francis Sch...:]

The $-Gold chart is not clear at all..contradicting technical signals...but als usual, Gold will go up against a wall of worry. Having said this, the Stress test of the banks is a joke and sooner or later Gold will find this out.


On Apr 22 06:37 AM Freya wrote:

> SJ: the chart is not looking good. The Author prefers to stand on
> the sidelines rather than jump in to buy because the chart has yet
> to give a signal in either direction.
>
> Better to give up a little than to lose.

Apr 22 07:14 PM

[one eye:]

Here we are, two weeks later: Banks up, Markets up, oil up, silver up, even Nat. Gas, up.

Gold is Unchanged. The issue remains unresolved.

But the longer Gold stays here, the Greater the odds that an unmentioned, 14 month chart pattern emerges: A H&S bottom with the Right shoulder being formed as of Now.

A move above a thousand will get you $1,300 on a measured move basis.

May 07 02:40 AM

[Freya:]

I'm already in gold and gold related stocks up to my gills. The only way I'm going to increase my holdings is through scrap or if Gold drops below $800.

Apr 22 10:36 AM

[Freya:]

SJ: the chart is not looking good. The Author prefers to stand on the sidelines rather than jump in to buy because the chart has yet to give a signal in either direction.

Better to give up a little than to lose.

Apr 22 06:37 AM

[Freya:]

Cup? Handle? Where does the Cup begin and why does the Handle look like a Flag?

The uptrend line from the Oct/Nov lows appears to have been broken. Why haven't you extended it like you did on the left. What does that by itself mean to you?

Better yet, why not a Double Top?

Apr 22 03:57 AM