By S.R. Nunnally

I called gold at $650 by the end of the year. December 1 showed January 2007 futures contracts trading as high as $653 before dipping down below my magic number. February 2007 futures contracts nicked $655.50 on the same day and have sustained prices above the $650 mark since then.

I grabbed a February 2007 gold futures chart from BarChart.com for you.

The formation is as clear as day: an inverted head-and-shoulders formation, also known as a head-and- shoulders bottom. I was so excited when I saw this formation, I immediately consulted charting legend Ann Sosnowski. Here's our conversation:

Me: Look at this gold chart. Inverted head and shoulders?

Ann: Yes, and it's perfect. The lower right shoulder is lower than the left, which means it will most likely be successful.

Me: Nice. What are the potential gains?

Ann: 38% average, most likely between 20-30%. You're in good shape.

Me: Is there a failure rate, or a breakout failure rate?

Ann: Only a 5% failure rate for the formation.

Me: Oh, that's beautiful.

Now, from my perspective, there are two inverted head-and-shoulders patterns. The small one spans from early September and begins to breakout in early November. If this were the only pattern, the average potential gains for this formation would take gold prices to $853.53, with a more likely rise between $742.20 and $804.05.

But a wider look at the chart shows a larger, more complex inverted head-and-shoulders pattern. This formation spans from early August and has just seen a breakout in late November. Using this larger pattern, the predicted rise for gold is pretty astounding.

A 20% rise puts gold at $776.16.

A 30% rise puts gold at $840.84.

The average 38% rise puts gold at $892.58.

If you've been keeping up with my gold to oil ratio articles, you know that a significant jump like this could and should happen. In my opinion, this inverted head-and-shoulders pattern is a signal that we're right on the verge of a major gold upswing.

WaveStrength Market Report readers are already positioned in the streetTRACKS Gold Shares ETF (GLD:NYSE), and seeing gains of 15%. If you want a chance to boost those gains and see a possible 427%, check out my special report on the gold to oil ratio.

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