Gold has been gaining steam over the last couple of days following news that North Korea could make nuclear warheads small enough to fit on missiles and the intense rhetoric that followed between President Donald Trump and North Korea’s army.
The precious metal has rallied almost 3% since the news broke on Tuesday morning and is now trading at its best level in more than two months.
And there may be more gains ahead, according to Jeffrey Gundlach, the founder, and CEO of DoubleLine Capital. “Cramer today was positive on a stock pointing out its “cup and handle” chart pattern, one of the most bullish. He’s right. Gold has one too,” Gundlach tweeted.
To be clear, Gundlach has not made a specific call for gold, and he has not specified what time frame he is looking at on the chart.
However, taking a look at the gold chart, it appears Gundlach is talking about the action over the last year or so in the precious metal.
A cup and handle pattern is such that an asset makes a run at previous highs, fails, and then proceeds to test those highs again over a much shorter time frame. The pattern is triggered on a breakout above the highs, which is also known as the neckline.
- Business Insider/Andy Kiersz/Jonathan Garber, data from Bloomberg
Now to be fair, while it does look like the pattern is taking shape, it has not yet been triggered with a breakout above the neckline. However, should that break out come, it looks like gold has a bit of room to run. Measuring from the late 2016/early 2017 low up to the neckline is good for about $166 ($1,294-$1,128). Add that $166 to the neckline ($1,294) and you get a gold target of $1,460, a move of almost 14% above its current price of $1,284.
That surely seems reasonable should the back and forth between Trump and North Korea go on for much longer.