NOTE:  Mr. Melman will be speaking at the Cambridge House "Calgary Resource & Investment Conference" scheduled for March 30 & 31.  His workshop topic will be "An Economic Perfect Storm - updated March 2012."               CLICK HERE TO REGISTER >

Talk about a double-bind with which Fed Chairman Ben Bernanke must contend.  On the one hand, he must convince the public that the Fed's policies are working and, in order to satisfy political pressure, that the economy is becoming more robust.  On the other hand, he must convince the banking establishment and the government that the economy is NOT performing in a robust manner and therefore interest rates must be kept at rock-bottom.

He must also convince those same groups that, on the one hand, he will not fuel the fires of inflation by keeping interest rates at historic low levels but also convince those same listeners that rock-bottom low interest rates are presently essential for the future of the economy.  If that sounds confusing, just consider his recent pronouncements.

Just two weeks ago, as readers may recall, Bernanke stated that since the economy appeared to be improving - particularly in view of February's Department of Labor jobs report - no further Quantitative Easing (QE) programs were being contemplated.  Upon hearing that news, the gold and silver markets plunged with the yellow metal ending that session down by $92.

Now, please fast-forward to this morning.  At a speech to the National association for Business Economics, Bernanke reversed course and now, as reported by Reuters, declared that despite the strong jobs report "...the U.S. job market remains weak and that the Federal Reserve's existing policies will boost growth."  The Reuters article concluded that, "...the central bank is prepared to keep interest rates near zero unless the economy improves substantially."  He also stated that he did not expect the Unemployment Rate to continue declining as rapidly as it has during the past several months. 

That sounds to us that he may be preparing the groundwork for future announcements that stimulation in the form of additional QE may indeed be in the works.

Since gold fell sharply on the earlier statement suggesting there would be no further QE programs, it is not surprising that it has rallied somewhat when the opposite suggestion was raised and, as can be seen on gold's chart, the yellow metal has indeed gained over $40 since its very recent trading lows.  Although gold remains far below its highs of last month, it has, for the moment anyway, been able to reverse the recent downtrend.

In our opinion, the one most important statistic to watch in order to determine future Fed policy is the reported rate of what we refer to as 'visible inflation', specifically the type of inflation the public will not ignore such as rising gas prices, rising food prices, rising out-of-pocket medical prices and restaurant prices.  As long as the public perception remains that these are under control, the Fed may very well succeed with its double-barrelled strategies, but if visible inflation raises its ugly head, they will be forced to modify their stance and that could lead to rapid rises in interest rates to rein in such inflationary pressures - and THAT could open the door to a host of new problems which we have discussed in previous entries in this space.

One thing is becoming apparent in all this:  the gold and silver markets will be paying attention to such developments.

Please allow me to return to a favourite subject. 

I have written several times about a peculiar change in investment information which has occurred during the past several decades.  For the greater part of investment history, it was news of individual company results that drove markets and, as these individual results were viewed on a collective basis, market averages made their up and down moves.

However, during recent years, individual news seems to now play a back-seat role to pronouncements by government leaders and we have an excellent example this morning.  Following Bernanke's comments noted above, the New York Stock Exchange reported that at the opening, all thirty stocks making up the Dow Jones Industrial Average were on the plus side!  Are we really supposed to believe that each of the thirty companies reported positive news about their operations?

Our point is simply that in order to evaluate trends in the financial markets, it is now an essential ingredient to follow - and anticipate where possible - the statements of political and financial leaders as much or more than individual company news items.

In last Friday's Melman Minute, I wrote a piece about how differences in political philosophy and policy truly mattered in terms of economic outcomes.  By one of those pleasant coincidences, I just noticed an item in the press which demonstrates clearly that there are vast differences between governmental policies toward mining - and those differences do indeed matter.

Let's take two jurisdictions as our examples, namely California and Quebec.  I had the pleasure of living in California not too many years ago and also, through my association with "ICMJ's Prospecting and MINING Journal" (published out of Aptos, California), I have been able to keep an active eye on mining policies in that state.  Simply put, I hold to the opinion that the regulatory climate relating to mining in California is difficult for individual prospectors and presents almost insuperable obstacles to the licensing of new commercial mining ventures.

In other words, in a similar vein to the Province of British Columbia under the previous New Democratic Party regime where the Ministry of Mines could have easily been re-named to the "Ministry of No Mines", it is exceedingly difficult to obtain regulatory and permitting approval for new commercial mining ventures in that state.

Contrast that situation to the Canadian Province of Quebec, consistently ranked as one of the most favored of all worldwide mining jurisdictions.  That province rewards expenditures for mining exploration and development, provides a substantial body of geological data and has worked hard to foster a pro-mining image by regarding mining not as some 'dirty' industry to be discouraged but rather as a vital contributor to the economic and social well-being of the province.

As a result, investment in  Quebec's mining industry has soared from C$700,000,000 in 2006 to well over C$4,000,000,000 in 2012 and the province now expects such expenditures to approach or even exceed five billion C$ in 2013.

One of the province's major banks, National Bank Financial, Inc. just issued a report which included the information that, "...Quebec's mining sector is becoming an important growth driver for the province."

It is all a question of attitude.

As of 9:30 AM PDT, financial markets in Canada and the USA are headed higher with the TSX Index up by about 80 points while the Dow Industrials are ahead by more than 100.  Precious metals continue to show gains with gold ahead by almost $25 per ounce to near $1,687 while silver has gained about 60 cents to near $32.55.  Base metals are moderately higher on balance while mining shares are about one percent to the plus side.

In other markets the US$ Index is off by about 35 basis points, Crude Oil is close to unchanged and long term interest rates are very slightly higher.

All quotes US$ unless otherwise noted.

Next Melman Minute is scheduled for Thursday, March 29 due to travel related to my speaking schedule at the Cambridge House Conference in Calgary March 30-31