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The trading range for the HUI Gold Bugs Stock Index has finally broken out of it’s horizontal trading range:

And formed an upward bias, with a series of higher highs and higher lows:

Gold stocks are now also leading gold, as the HUI:Gold ratio has broken out of it’s trading range and the stocks are once again leading gold higher:

While the main reason we want to own gold stocks is their leverage to the gold price, I would still continue to take “some” profits off the table when the HUI hits the top of it’s trading channel.

I like to play trading ranges until I get taken out of them. You don’t need to take your entire position off. Just take 1/3rd, 1/2, or whatever you’re comfortable with, off the table.

Remember, you can’t buy pullbacks profitably unless you sold into strength. And you can always buy a breakout if confirmed.

And that’s what we’re waiting for… a confirmation that gold has formed a base and is ready to challenge it’s $1,000 highs once again.

Gold has just broken it’s five month uptrend, a move that was fueled by a powerful move against all major currencies. While this resumption of gold’s uptrend over the last month was powered by US Dollar weakness, gold has been in a downtrend against the Yen, Euro, British Pound, and the Swiss Franc since it’s $1,007 top in February.

But, in the chart below, you can see that gold is on the cusp of breaking it’s downtrend against the four other major currencies.

We are in unprecedented times. Never before in history has the world seen such a globally coordinated reflation. Central banks are cutting interest rates to levels where much of the world now has “negative” real rates. They are expanding money supply and instituting stimulus packages. And they are engaging in quantitative easing, monetizing both stocks and bonds.

While debt deflation, job losses and the destruction of the shadow banking system have negated much of the inflationary pressures of recent central bank actions… much of the world is calling into question the sustainability of the U.S. Dollar’s role as the global reserve currency.

And it’s not just the future of the U.S. Dollar that’s being questioned.

If you think the future risks of hyperinflation, or comparisons to Germany’s Weimar Republic are exaggerated, take a look at these numbers from Martin Hutchinson’s article titled: “Is It 1932 - or 1923?”

The really chilling parallel is that the United States, Britain and Japan have now taken to funding their budget deficits through seigniorage. In the United States, the Fed is buying $300 billion worth of U.S. Treasury bonds (T-bonds) over a six-month period, a rate of $600 billion per annum, 15% of federal spending of $4 trillion.

In Britain, the Bank of England (BOE) is buying 75 billion pounds of gilts over three months. That’s 300 billion pounds per annum, 65% of British government spending of 454 billion pounds.

Thus, while the United States is approaching Weimar German policy (50% of spending) quite rapidly, Britain has already overtaken it!

And if you think the worst has passed for the U.S. …think again.

YRC Worldwide, America’s largest trucking company is asking for a $1 billion dollar bailout from TARP.

http://www.latimes.com/business/nationworld/wire/sns-ap-us-yrc-worldwide-bailout-request,0,6051484.story

Insurance companies are also tapping TARP funds.

http://www.npr.org/templates/story/story.php?storyId=102887299

The Pension Benefit Guaranty Corporation (PBGC), the agency that insures U.S pension funds is facing a funding crisis.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aX_YpTysrpx4

Vince Snowbarger, the PBGC’s acting director, said the agency’s deficit tripled to $33.5 billion in the past six months as companies canceled retirement plans in the U.S. recession. About $11 billion is for “completed and probable terminations” of company plans and $7 billion is from a decrease in interest rates that boosted liabilities, Snowbarger told the committee.

The financial condition of the PBGC may worsen amid the likelihood of more pension-plan failures, he said. In the first half of the fiscal year that began in October, the PBGC took on almost four times the number of participants as it did in all of 2008.

The potential for General Motors Corp. and Chrysler LLC to end their plans leaves the PBGC facing the prospect of adding 900,000 current and future beneficiaries. The PBGC estimates that $77 billion of the automotive industry’s pensions are underfunded, with about $42 billion of that guaranteed by the agency for retirees.

Tax revenues are collapsing in America. California is in crisis and is asking for a federal bailout. And California is not the only state government in dire financial straits. 41 out of 50 States will face budget shortfalls this year, or in 2010. New York, Michigan and Illinois are also in dire straits.

All reasons why the perfect storm for gold continues to build on the horizon.

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