A Melman Minute By: Leonard Melman   NOTE: In order to complete Mr. Melman's forthcoming book on the essential fundamentals of the developing international financial crisis and its relationship to gold and silver, new "Melman Minutes" will be posted only three times per week, each Monday, Wednesday and Friday. The working title of the book will be 'Just a Melman Minute!"   December 23, 2009   TO ALL OUR READERS AND ASSOCIATES, PLEASE ACCEPT OUR HEARTFELT WISHES FOR A MERRY CHRISTMAS AND A HAPPY AND PROSPEROUS NEW YEAR! - - - - - The press has swung full circle and over the past week or two is now reporting huge increments of 'bad news' about gold.  We would agree that gold has indeed suffered short term losses, but would add that there is both bad news and good news relating to gold's overall performance. First the bad news, which clearly shows that gold has indeed had a sizeable setback, falling from just under $1,230 near the beginning of December all the way down to about $1,075 - a loss of $145 per ounce, or about 12% from its peak - and there is no guarantee that this bout of selling is over, although gold is rallying this morning and is once again approaching the $1,100 level.   However, when we look at the long term chart (10 years) we find that this recent bout of selling it not at all unusual within this ongoing long-term gold bull market.  In fact, compared to previous sharp sell-offs since 2002, this one has a moderate feel to it.  Please note the following: * - In late 2002, gold fell sharply from about $400 to near $320 - a drop of 20%, * - In late 2005, gold fell sharply from about $730 to near $550 - a drop of 24%, * - In early 2008, gold fell swiftly from about $1,030 to near $850 - a drop of 17%            (although it encountered another major selling wave later that year). In each of those illustrations, after a period of consolidation, the bull market resumed its upward course and eventually reached new and higher levels. While we cannot guarantee that gold will not continue to fall and perhaps even reverse this long-term bull market, we can point to history and offer the opinion that to date, this decline is well within the normal magnitude of a correction, rather than an entire trend reversal.  ......................... Continuing with our forward-looking speculations regarding the coming year from Monday's MM, we can report that the Obama Administration financial leaders are finally getting information supporting their earlier claims regarding "green shoots" and an improving underlying economy. During the past few days we have seen reports from the National Association of Realtors showing a considerable improvement in "Existing Home Sales" for November which came it at the highest level in more than two years and also showed stability in home prices; reports from America's hard-hit "heartland" regions such as Elkhart County, Indiana showing employment improvement (at long last); and a Commerce Department report indicating Personal Income rose 0.4% in November in America and Personal Spending also rose 0.5% during the same month.  As an AP report stated things, these figures were, "...raising hopes that the recovery from the nation's deep recession might be gaining momentum. Treasury Secretary Timothy Geithner wasted no time in projecting such improvements into the future and was quoted in another AP article as noting, "...he believes it's reasonable to expect "positive job growth" by spring and that people should have confidence about an improving economic climate...I think most people would say the economy is actually strengthening now going into the end of the year." We wish Mr. Geithner would look at another chart before he gets too carried away with his "flowers that bloom in the spring, tra la" (*) rosy-colored forecasts, for there is yet another chart headed higher that we believe merits the closest attention, and in this case, 'higher' is not good news.  We are referring to interest rates.  Monday we took a look at the long-term chart but activity over the shorter span is also important. In the short span, we can see that during the past few months, long-term rates rose from 3.9 to 4.5%; corrected back to 4.2% and are now headed higher once again, having passed above the November peak and are now approaching the July-August highs near 4.67%.  As has been stated by us and others on many occasions, nothing could put the 'kabosh' on economic expansion faster than a substantial rise in interest rates, both short and long, which would negatively impact housing and auto financing thereby diminishing demand for autos, appliances, etc., as well as lead to rising government borrowing costs which could force even greater doses of deficit financing and money creation. .................. At long last, President Obama has an apparent legislative triumph for which he can take credit with the almost-completed passage by the Senate of his much-altered Health Care Bill which provides for all Americans being able to obtain medical insurance.  Because of this boon, government forecasters are projecting federal costs for providing medical care to those presently uninsured will drop, with the result being a major reduction in the federal deficit.  Perhaps they should take a closer look before offering congratulations all around. Insurance companies operate on a 'pooling of risks' model whereby projected claims for their pool of customers, combined with normal operating expenses, are balanced against premium income.  Now, however, according to a Wall Street Journal analysis, this bill mandates levels of treatment for, "...ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance abuse disorders, prescription drugs, rehabilitative services and devices, laboratory services, preventative and wellness services and chronic disease management, etc. etc.  Not only will insurance companies be forced to provide all these services, but they will have to do so at rates foisted upon them by government bureaucrats who history has shown frequently opt for the most generous levels of care.  Unfortunately, there is no provision in this law for insurance companies to raise premium rates sufficiently to cover the projected increase in costs. As the WSJ concluded, "...Taken together, these restrictions are likely to drive them out of business..."  Markets this morning are trading on light volumes as participants take off on their holiday vacations, but this lack of trading liquidity has led to some sharp moves.  As of 10:20 AM PST financial markets in Canada are up by about 50 points while the Dow Industrials are close to unchanged.  Gold continues higher, having reached an intraday high of $1,096 while silver is also gaining, up 20 cents to about $17.15 while base metals are showing strong advances with copper up by a full six cents per pound and zinc roaring ahead by almost four percent.  Good action in precious and base metals has led to large mining share index gains with both XAU and HUI up by 7 and 17 points respectively.  Crude oil is ahead by $2.00 to near $76.50 per barrel and the U.S. Dollar Index has given back early gains and now is off by about 40 basis points. - - - - - All quotes US$ unless otherwise indicated. Next Melman Minute scheduled for Monday, December 28, 2009   ◄  Previous Minute                                                                                                        Next Minute  ►
		DISCLAIMER The information presented above is based on data which we believe to be from reliable sources, but the accuracy of which cannot be guaranteed.  Any opinions or predictions contained herein are those of the editor and are likewise offered also for information purposes only. Any investment decisions should be made only following consultation with registered investment professionals.