It's been a while since we've looked at the precious metals and as instruments galore are attempting to inflate via joyous pushing by central banks, let's see how gold and silver are reacting. Technically I am looking at the ETFs for gold and silver rather than the actual commodity but the charts are virtually identical. Both metals are rallying in the past week but let's take a bigger picture view.

First we have gold etf (GLD), which is within a large triangle that is narrowing. On the lower end we have nice support and a series of higher lows. That's bullish. However, on the top side we are (thus far) creating a series of lower highs as early June's peak did not match the spike in February 2009. Of course late February was the peak of worldwide fear at what virus the US has spread to all our global friends.

Next we have the silver ETF (SLV), which is part precious metal and part industrial metal - this one is perhaps a bit more bullish in that while we have the same nice support trend line and higher lows on the bottom end, the early June high surpassed the February 09 peak. For a technical breakout here we'd want to see that June high surpassed and than you'd have HAL9000's across the land bursting a microchip to get in.

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Just for comparison sake I am posting the chart for copper to overlay versus silver. Of course China is not buying hordes of silver as it is copper, and distorting the normal supply and demand dynamics so at this point any commodity China is after is hard to compare apples to apples.

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Now if the stock market is ever allowed to go down by Goldman Sachs decision (who has a 97% chance of making money today) I want to see how these precious metals act. Since our correlations are now at record levels - the dollar down, commodities & emerging markets up has been ingrained into every motherboard across the world. If Goldman Sachs allows and we fall, the dollar should (in theory) rise - if for nothing else than an oversold bounce. If when this happens, gold and silver can flatline and not give back a large part of this move or indeed even advance - then the case for the defeat of deflation and the success of the central banks bringing us inflation of the highest order might be secured.

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Personally I hope our fearless leader Ben Bernanke is successful in his campaign of reflation aka crushing the lower end of our society via the most regressive tax on the planet. Then maybe Americans can begin asking the questions why they are paying $4 gas when the economy is in shambles (err, just recovering) along with $4.50 a loaf for bread. Because unless it is this in their face Americans seem not to ask the questions - since economics classes are just for nerds. (have you seen the price of cookies of late? gosh!) Then the government can begin to send out representatives to blame the OPEC nations for the oil situation (or the evil oil companies - I can hear Sarah chanting drill, drill, drill from here) and shoot talking points to the mainstream media about how the middle class in China and India are causing Americans not to be able to afford foodstuffs. Remember, it's never our fault - we are a harmless people with benevolent leaders who enjoy running printing presses for pleasure.

Meanwhile a select group of blog readers will know the reality.