Is Gold In A Bubble? No Way! Classic Cup and Handle Pattern

By: Jeb Handwerger | Fri, Jun 11, 2010
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On the front page of all the media outlets is the question if gold is in a bubble. I ride bubbles and look for beginning signs of bubbles. Bubbles are irrational, but there is an old saying that markets are irrational a lot longer than one can stay solvent.

I believe gold is nowhere near a bubble top and believe now is the time to profit on the next major asset class ready to run through finding the strongest mining stocks in the sector. I use relative strength to find those companies.

Gold is in a classic cup and handle pattern. The cup and handle pattern has historically led to major market moves.

Gold - Daily Chart

You can see by the graph the major breakout from the six month saucer on excellent volume. Notice how the volume dries up on the handle. Now I expect a major breakout and a run to $136 on GLD or $1375 an ounce.

Compared to other bubbles gold appears flat.

XOI - Quarterly Chart

This a chart of the oil index verse the gold and silver index. Notice the run in oil before the credit collapse. This run lasted almost 5 years before it topped. Meanwhile for the past 15 years the XAU has been relatively flat and yet it has had a nice run we have not seen the run up like other asset class bubbles.

I believe there are signs that we may be moving into a peak gold area and would not be surprised if there is a global rush to gold as investors lose faith in fiat currencies.

The recent collapse of the euro only preludes what will eventually happen with the dollar and treasuries. Now many people have run from the Euro to dollars, but I believe that is temporary. Now is the time, before the masses rush in, to buy gold and specifically the strongest mining shares which I highlight here. This is not the time to be bottom fishing other markets. I believe to stick to strength. This chart above gives me the confidence to know that we have not entered bubble territory yet.

 


 

Jeb Handwerger

Author: Jeb Handwerger

Jeb Handwerger
http://goldstocktrades.com

Jeb Handwerger

I started reading charts at eleven years old. One day my father, a market trader and technician found his library of books on technical analysis mysteriously disappearing. He later found the textbooks under my bed. For many years day and night I studied technical analysis and charting, working and learning from my father who has over 50 years of trading experience. Technical analysis is my passion and love.

In 2001, I started noticing the junior mining stocks and gold as having a tremendous upside. For the past 9 years I have researched many juniors and have identified the major winners using technical analysis and finding top management.

I earned a Bachelors Degree in Mathematics and a Masters Degree. I learned most of my technical analysis from the school of hard knocks, managing real money for myself and for my family.

Constantly perfecting my craft, I have traded for two decades of success in many different markets. I have been asked to post ideas to some of my students who have taken my course in charting and technical analysis. I have made an excellent living trading stocks for myself.

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