Update on the Gold 'Shadow Chart' - Review of the 'Cup and Handle' Formation

A "Cup and Handle" is a bullish continuation pattern in an uptrend. 

 

The greatest factor working against this current gold chart as a cup and handle is that it appears during a consolidation pattern in a broader uptrend. 

The 'cup' is best shaped as a "U" and the broader the bottom the better.

The 'handle' is a retracement when the right side of the 'cup' reaches its prior highs. The handle often resembles a bullish pennant.

The retracement usually does not exceed 1/3 of the advance of the cup to its second high, but can go as deep as 1/2 in a volatile market.

Here is a textbook picture of a 'cup and handle formation' from Investopedia.

Below that is the chart in progress of a cup and handle in gold that proved to be quite successful.

Here is the current daily chart of Gold. As you can see there is a possible cup formation. It will not be confirmed until we see a successful 'handle.'

I cannot stress this enough.  It will be in the nature of any 'handle' that is formed that the cup and handle formation can be confirmed.

Until then there remains the very real possibility that this will develop into a mere trading range between 1800 and 1550.  Gold may also hit the 1800 level and after some consolidation break away and just keep going higher.

 

The more I look at the possibilities the more I become convinced that this is just a long consolidation in a bull market.  That implies a breakout and breakaway to the next target price.   We cannot tell if it will break out on this attempt at the top of the range.  This is the third major attempt.  It does have the winds of QE3 at its back.  But there is significant trouble in the global economy that may pose a risk to all asset prices.  

And of course the western central banks have a vested interest in keeping the price of gold 'orderly' so it does not impair the confidence in their paper games of QE to ∞.

 One way to make yourself look good is to diminish the competition.  They have to be careful of being too heavy handed because at some point intervention becomes 'machine-gunning the lifeboats.'  Therefore it is likely that they will have someone else holding the gun, some favored bank or hedge funds.

I do not know what will happen.  No one does.  But we know what to look for.

Gold Daily and Silver Weekly Charts - A Look At Precious Metal ETFs - Split Right Ball Curl On Ben

The line is being held as I said yesterday. 1800 is the next 'first down' marker for gold, if they can cross it and hold it. Silver *could* lead the way, but that might look more like a deep pass to midfield.

Ben Davies thinks that the next move in gold can be big. I think he might be right IF they can break and run with it past the prior highs. And that is a big if with Ben and his extended team of thugs throwing cheap shots all over the field and 'managing' the scoreboard. This sometimes seems like The Longest Yard. Maybe its time for the bulls to call Split Right, Ball Curl on 1. Heads up Ben.

Here is some commentary from Lauren Lyster on the use of ETFs in the precious metals markets.

"Investors can gain exposure to precious metals using ETFs. Specifically, Gold and gold miner ETFs have become increasingly popular. But if you buy shares in a gold ETF like the GLD for example, the largest gold ETF in the world, do you actually own gold? The answer is NO. You are effectively buying shares in a fund indexed to the gold market. This is not the same thing as buying physical gold bullion and storing it in allocated vaults, a key distinction.

Also, in the case of GLD, the Trust does not insure its gold. Which means it may not have adequate sources of recovery if its gold is lost, damaged, stolen or destroyed. And this may surprise you when reading the prospectus as we have. According the prospectus for GLD:

"The amount of gold represented by the Shares will continue to be reduced during the life of the Trust due to the sales of gold necessary to pay the Trust's expenses irrespective of whether the trading price of the Shares rises or falls in response to changes in the price of gold....

Gold held in the Trust's unallocated gold account and any Authorized Participant's unallocated gold account will not be segregated from the Custodian's assets. If the Custodian becomes insolvent, its assets may not be adequate to satisfy a claim by the Trust or any Authorized Participant."

So if the custodian- in this case HSBC- runs into trouble, it may not be able to make good on your claim."

Here is a graph showing the long and short positions in silver futures.

SP 500 and NX Futures Daily Charts - Failure Is Not An Option

Apparently failure is not an option, when one is talking about financial assets in a time of open-ended quantitative easing.