Be Stout of Heart

By Howard S. Katz, GoldSeek

Gold bugs went to the wall on Wednesday as the price of gold dropped just shy of 20 points. What to do? Is this the tail end of a decline (and a time to buy)? Or is it the start of a bigger decline (and a time to sell)? A great deal rides on the answer to this question, and this is the question I address in the One-handed Economist of July 10, 2009. For the full answer, you will have to send in your subscription, but here I can at least give you a few hints.

Over the past few months, we have discussed many of the common chart patters. We discussed the saucer (or rounding) bottom, an example of which occurred at the bottom in gold stretching from 1998-2002 and signaling the advance of the past 8 years. We discussed the symmetrical triangle formation, which occurred over the heart of 2006-07 and predicted the advance in gold to $1000. We discussed the ascending triangle formation which is taking shape in gold right now and is predicting an advance beyond the $1000 level. We also discussed the double top pattern which has formed in the U.S. dollar since last November and which (if it can break below 78 ¾) will signal a decline in the dollar to new low ground.

But to solve the problem of this past week’s action, we must introduce another pattern. This is a very powerful and common pattern called the head and shoulders bottom. A head and shoulders bottom is a chart pattern which, if turned upside down, roughly resembles a man’s head and shoulders.

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