Good Charts Too!

“But what's this? Headline in (the) Financial Times -- “Republicans to Push Gold Standard Back Into Center of Political Debate.” I think this is just a feeler, I doubt whether the US is ready to go back to the gold standard. That will happen out of desperation when there's no where else to go.

Of course, the Fed will fight any suggestion of going back to the gold standard. The Fed wants to have the sole right to create money, and the gold standard means discipline, the last thing the Fed wants. But it's interesting that the subject of gold has come up at this time.

Lets start with some basic fundamentals. With the entrance of Asia, China and the emerging nations into the world economic system, more products were made than the world could digest. This was the beginning of world deflation. The planet was chocking on competitively-priced goods. And it produced deflation.

The US and Europe would not tolerate deflation and the high unemployment that went with it. There was only one proven method of attacking deflation, and that was to print more currency or to devalue the currency. A second huge problem emerged -- the problem was that the new trend of deflation came at a bad time -- the deflation came at a time when the world was drowning in debt.

Again the formula to handle debt was to print more currency -- to devalue the various currencies. Actually, the world's debts were so huge that it required a huge devaluation in order to service the debts. In the face of these problems, the Fed and the various central banks went on a currency-printing binge. This is the difficult background that we now face.

Europe is in recession, China's economy is shrinking quarter after quarter, the US is in semi-recession (to be polite), and the Fed and the central bank of Europe are dealing with the problem of when to print. The next printing operation cannot be a small one -- to have any effect it will have to be massive.

Those who are depending on China to brighten the global economy should examine the chart below. This is a chart of the Shanghai Composite. It's hardly encouraging.

I present all the above as the basic background, which suggests more and increased central bank printing. It's also the long-term background for the accumulation of diamonds, commodities, classic cars, objects of art, any thing of tangible value, collectibles -- and gold.

Next, what to do? Let's begin with the super-laggers. And, of course, I'm referring to the gold-miners. I'm posting two ETFs. The first, GDX, includes the better or higher-grade gold-mines. The second chart, GDXJ, includes the smaller or junior, more speculative gold mines. These smaller mines are often bought or merged with the larger mines during periods when gold is ‘hot.’ The junior mines are often bought for their gold reserves.

Below we see GDX surging above its 50-day moving average. RSI is near the overbought zone, and MACD is bullish.

Below is GDXJ, which includes the smaller, speculative, junior mines. Here we see GDXJ surging above its 50-day MA. RSI is again signaling overbought. Both of these ETFs are showing bullish accumulation, and both may now be due for a rest. However, I think speculative positions in either or both are worthwhile.

Meanwhile, with the Fed and the European Central Bank poised to create more currency, gold is in a potential position to move higher.

Below you can see GLD, which features a run-away gap, which has taken it above both moving averages. This could be the very beginning of a major move in gold, and it may be a move that turns out to be one that is well worth being in.

As I said, gold is overbought and probably needs a rest or consolidation.

Late Notes: Just another day and the Dow going nowhere fast. Cigar today goes to Gold which happily again is above 1600.”

Cheers

W.C. Guy