By Jordan Roy-Byrne/Trendsman

Thecup and handle pattern is one of the most prevalent and reliabletechnical patterns. It occurs often and in short, medium and superlong-term time frames. Technical analysis is not an exact science. Infact it is more an art than science. The formation of a technicalpattern doesn’t imply infallibly, that the pattern will complete itselfaccording to textbook manner. However, I find that the cup and handlepattern completes itself far more often than any other technicalpattern. Its record is very good.

Inthis update I want to take a look at the pattern in the context of theGold market. Our first chart contains two examples of the pattern. Notethe three stages of the pattern, which follow the formation of the cup.The first example occurred from 1996 to 2004, while the second exampleoccurred inside of the larger pattern, from 1999 to 2002. Notice howboth patterns completed the three phases? (Initial pullback, breakout,retest and blastoff).

Therule on price targets is first and foremost arithmetic and thenlogarithmic. In the first example, the price targets would be $363 and$398 for the logarithmic. In the second, the targets are $593 and $702.As you can see even the logarithmic price targets played out in bothcases.

Nowlet’s focus on the big picture and what is about to happen in this goldmarket. Take a look at the Gold chart below (from bigcharts.com). Goldis just starting to emerge from this nearly 30-year cup and handlepattern, which has a massive base at $700 to $730.

Rememberthe three stages? Initial pullback, breakout, retest and blastoff. Themarket is now at the blastoff phase. In terms of the targets I come upwith $1,205 and $2,087. I should also mention that the next strongestFibonacci targets are $1,500 and $2,300. I neglected to mention that inthe cases seen on the last page, the targets were hit in less than ayear (after the pullback to support). I would be surprised if ourtarget of $2,087 wasn’t hit within two years.

Aswe mentioned, technical analysis is not an exact science. It should beutilized in tandem with fundamentals and sentiment. Most readers ofthis website are well aware of the bullish fundamentals of Gold. Wedon’t need to tell what you already know. In terms of sentiment, Ibelieve we are fast approaching the point of recognition. I have beenwriting about this for several years and prematurely expected the pointto be imminent.

Thepoint of recognition by the way is sort of the herd realization of thebull market. Why is the herd realization coming soon? First, let’s lookat the deflationists. Most of them seem to believe that inflation willbe coming, though very far into the future. The reality is that Goldadvances and outperforms well in advance of an inflation cycle. Duringthe cycle it is non-gold commodities that perform best. Thedeflationists will capitulate as soon as Gold hits a new all time high.The average investor is starting to realize the inflationary future.Moreover, they are starting to realize there are few viable optionsoutside of precious metals. We think a stampede into precious metalswill begin later this year.

Hereis our rough projection for the future. Look for the market to make afinal pullback before the most exciting phase begins. The movingaverages are starting to align and in a few months should provide asolid base near $850. This market is just months away from an explosionto new all time highs. $2,300 is our target by year-end 2010.

That’s all for now. Good luck!

Jordan Roy-Byrne/Trendsman