Before looking at recent headlines and articles of interest, I think this would be an appropriate moment to re-state two of our guiding thoughts which lay behind our 2012 forecast of higher precious metals prices by year-end 2012.

It is our belief at The Melman Report that the number of people who are losing faith in the ability of 'conventional' economists and politicians to successfully manage the economic and social affairs of the world is diminishing and, as these people lose faith in conventional economists and politicians, greater numbers will turn to the presumed safety of gold and silver investments, ultimately driving those prices much higher.

It is also our belief that the seeming determination of the European Economic Community to enforce 'austerity' measures in order to re-establish economic discipline is similar to the drug addict who swears never to use his drug of choice again.  Such vows sound great, but usually fade into insignificance as the pain of withdrawal becomes more than he/she can bear and the addict willingly resumes his addictive behaviour.  In a similar manner, we believe the vows of nations to no longer run deficits, accumulate debts and swear off money creation will result in a similar end.  Then, as the money creation and 'stimulation programs' kick in once again, we believe the precious metals will react positively.

First, however, an immediate look backward.  In Monday's "Melman Minute" I noted the accumulated effect of tax increases which have been taking place over the past century or so in America and other nations.  By one of those strange coincidences which occur from time to time, a an article appeared this morning by Bloomberg News Service detailing that the number of Americans renouncing their U.S. citizenship has risen seven-fold in the past four years.

The proximate reason offered is that the U.S. is the only nation that taxes American citizens wherever they live and, therefore, the only hope of escape from American taxation authorities for many people is to cease being American citizens.  As a result of recent American efforts to locate and tax their citizens' foreign holdings - for the most part successful - the number of people entering American embassies in foreign nations to turn in their passports and renounce their citizenship has soared.

I believe it is quite possible that we will see the beginning of a genuine tax rebellion in coming years as the number of taxes and fees continues to proliferate.  As a simple example, I noted an advertisement in a Canadian newspaper for air travel from Vancouver to various cities.  The ad itemized the basic fare as distinct from all the various fees and, as I recall, the approximate figures to travel one-way from Vancouver to Calgary cost a fare of about C$139 plus 'taxes and fees' of C$63 for a total cost of C$202. 

What must be noted is that none of these 'taxes and fees' even existed just a few years ago.  I have personally travelled frequently by air for about 45 years and, somehow, for most of those years airlines and airports functioned quite well without assaulting the public with these impositions.  In the same manner, we had roads without swarms of gasoline taxes, telephones without heaps of telephone taxes, etc - and yet society functioned quite well.  It is also worth noting that not only is the number and variety of taxation increasing, but the tax rates for each 'services' such as passports and driving licenses are also skyrocketing.

We believe that all of this taxation will be ultimately destabilizing for society, adding to the impression of political and financial incompetence which many now hold.

Mining itself has been in the news lately in several nations with some items positive while others continue to provide a somewhat negative background.

On the positive side a recent Post media story related how "...Digging raw materials out of the ground is big business in Canada...The country produced more than C$50 billion worth of minerals in 2011, up from C$19.6 billion in 2001."  The article attributed much of the increase to rising demand from China.  From our point of view, a growing awareness of mining's contribution to the national economy could act as a buffer to limit the intrusiveness of the environmental community.

In another story of a similar nature, an article out of Chile itemized the contributions of a major Teck Resources project near the town of Andacollo where Teck has already spent $440 million to expand an open-pit copper project on the edge of the community.  The article informs us that, "...for residents of this remote community on the southern fringe of the great Atacama Desert, about 350 Km north of Santiago, Teck's hunt for copper means money and jobs.  The company has almost 800 employees at Andacollo, and another 850 work for contractors."  This article can also help to create a more positive image for mining.

However, there is also some negative news to report from Chile as the Supreme Court of that nation has voided an environmental permit for Goldcorp's "El Morro" gold and copper project based on the objections from a native community near the mine.  The project could become a major producing mine, but for the time being, development work has been suspended until the community's objections can be resolved.

In a different story with a unique twist, Taseko Mines Ltd. has filed an objection to the preliminary use of spiritual prayers by aboriginals at hearings to determine if Taseko could obtain a go-ahead for its new Prosperity Mine application.  The previous application had been rejected.

Taseko claims that spiritual prayers have no place at hearings which should be dedicated to facts and data.  The media is now having a field day portraying a company which is trying to diminish the spiritual value of an aboriginal tribe.

Clearly, the mining industry must continue its public relations work if it is to retain any hope of overcoming the strong efforts by the environmental community to discredit the industry.

As of 9:0 AM PDT, precious metals markets have been falling back in response to renewed strength in the American Dollar with gold off by about $10 per ounce to the low $1,650s and silver is now trading just above the $30.50 mark.  Base metals are also selling down sharply and, not surprisingly, mining share indexes are also trading lower.  Financial markets in both Canada and the USA are down, with the Dow Industrials off by about 30 points while the TSX has fallen by about 100.

In other markets, the US Dollar Index is up by about 30 basis points, crude oil is down by about 80 cents and long term interest rates continue to trend lower.

One chart caught our eye and that is Soybeans, which are used in a wide variety of agricultural products.  We cannot help but wonder if the recent strong gains in the Soybean contract might be a harbinger of a sustained rally in food prices.

All quotes US$ unless otherwise noted.

Next "Melman Minute" scheduled for Friday, May 4 from our hotel room in Saskatoon where we will be appearing at the Cambridge House Resource Conference in that city.