$GLD - Potential Cup and Handle Formation

There is a potential cup & handle pattern forming in gold.  William O'Neil discovered the pattern.  Some of the things he looks for in cup & handle patterns are:

1.  Share price rise leading into left lip at least 30%.  Here the rise was 34% from July 2009 to December 2009.

2.  Cup duration usually between 13 and 26 weeks.  This cup formed over 22 weeks.

3.  Cup depth between 12-33%.  The depth here is 18%.

4.  Declining volume in the handle.  Check.

5.  The handle forms in the upper half of the cup above the 200-day moving average.  Check.

6.  Handle duration best if completes within 4-5 weeks.  So far so good.

In addition, I like to see U-shaped volume in the cup formation, which we have here.

The pattern is confirmed when price closes above the right lip of the cup on a significant volume breakout.  If the pattern completes, the conservative target is half the depth of the cup above the right lip, or $1345. Many times, price will exceed full cup depth added to the right lip, or $1445 in this case. 

We are nearing a low risk entry point for gold.  Gold closed down today at $1206.80.  Should it fall back into the $1185 region over the next week or so, you could enter long with a stop at $1130 (50% of the cup depth).  You'd be risking $55 for a potential gain of $160 to $260.