Wisconsin voters went to the polls yesterday in their "recall" election and the results of their voting could have major implications for the upcoming November 2012 Presidential elections.  In short, they delivered a sharp rebuke to President Obama and the Democratic Party by supporting Republican Governor Scott Walker by a greater margin than he had received in the gubernatorial election of 2010, delivering a nine percent margin of victory as opposed to six percent two years earlier. 

What made the election results particularly significant was the fact the entire Left of America's political structure threw the entire 'kitchen sink' into this election with unions on the march, Democrats from other states entering Wisconsin with money and star power and the open support of one left-leaning media center after another all issuing commentary in favor of the recall effort - but it all failed dismally.

One of the net affects of such failure is that many workers are dropping out of government unions since the days of unending union-initiated benefits appears to be over and this could seriously limit the funds unions will have available to fight future contests.  That could seriously curtail the ability of unions to widely influence future electoral contests, particularly in light of the fact that that many other states headed by Republican governors might now attempt similar legislation to control union power within their states.   

The results of this Wisconsin election leaves the entire question of November 2012 open to wide debate and could be the harbinger of a most interesting political season.

The financial community received yet another indication that the European Central Bank (ECB) will be more accommodative in terms of providing liquidity this morning when new ECB Chairman Mario Draghi suggested new rounds of stimulation could be in the works.  Gold responded immediately with another sizeable rally, taking the yellow metal as high as the low $1,640's.  As can be seen from gold's chart, resistance near $1,600 has been exceeded by a wide margin and gold now appears to be entering an area of previous heavy trading between $1,650 and $1,700.  It is also worth noting that gold has gained more than $110 from bottom to top within just four trading days - a major move no matter how you look at it.

This is impressive short term action and if gold can hold above the $1,600 level before advancing to new short-term highs, we could be observing the creation of a new "flex point" in gold's long term chart, pointing the way toward stronger future rallies.

Gold's 'junior partner', silver, is also putting on a sterling (pun fully intended) performance, particularly in early trading this morning as silver is already up more than a full dollar on the session.  Silver's chart shows a percentage gain even greater than that of gold over the past few days.

Like gold, silver has also been able to overcome short term resistance and now appears headed toward its own area of previous heavy trading which took place in the $31-33 range.  A breakout above that resistance would be a strong positive signal.

It is our belief at The Melman Report that these improved performances in the precious metals could be due to a growing belief in two concepts.  First, the European financial problems are not being truly resolved, but in fact are being papered over with ever-greater infusions of fundamentally worthless fiat currencies.  Second, the situation is not, in fact, on its way toward a clear and decisive resolution, but is still headed in the wrong direction.

Within the latter concept, we note that Spain is following the well-worn path of first sounding positive about their future, then admitting to slight difficulties, then acknowledging that the problems might indeed by serious and then, when matters have clearly degenerated into crisis, admitting that they might not be able to resolve them through their own national efforts, at which time they will be 'forced' to call on the international community for assistance.

They appear to have reached that final stage if a report emanating from that troubled nation this morning has any validity.

Spain's Budget Minister, Cristobal Montoro, acknowledged that due to its rising interest costs, massive unemployment and declining economy, Spain may not be able to access financial markets in a conventional manner and must, therefore, consider calling on the international financial markets for assistance. 

According to the Wall Street Journal, "...The next test will come Thursday (tomorrow) when Spain hopes to sell up to two billion Euros in a critical but relatively small auction."  If they are not able to find conventional buyers for that new debt, then the situation could become critical in short order.

The great problem, of course, is the comparatively huge size of Spain's economy, estimated to be five times that of Greece.  It is the potential magnitude of the problem which is causing great concern in Germany as the potential size of a future Spanish bailout would put additional strains on the Ge3rman economy as well and their domestic voters are getting tired of pressure to pay out increasingly large sums in order to salvage the situation.

Spain's new difficulties will likely be a centerpiece of discussion at the forthcoming G-7 meetings to be held in Brussels near the end of June. 

The latest figure being bandied about to simply rescue Spain's banks is now ninety billion Euros and that figure includes nothing to support their ailing economy.  And waiting in the wings is the entire looming Italian crisis.

It sure threatens to be a long, hot summer both politically and economically.

Financial markets this morning are enjoying a strong 'relief' rally following several weeks of dismal performance.  As of 8:45 AM PDT, America's Dow Jones Industrial Average was ahead by slightly more than 200 points while Canada's TSX Index had gained nearly 170.  Precious metals were holding on to strong gains with gold trading up $21 on the session at $1,636 while silver continued to rally, now approaching the $30 per ounce mark.  Base metals are mixed with nickel and zinc headed lower while copper and lead have posted good gains.  Mining share indexes are ahead by about two percent.

In other markets, long term interest rates are now rising for the third straight day, the US Dollar Index is trading down by about 35 basis points and the price of Crude oil is about $2.00 per barrel higher to above the $85 level.

All quotes US$ unless otherwise indicated.

NOTE:  Our technical manager, Paul Whyte, will be out of computer access Friday while en route to Canada's Maritime Provinces.  Accordingly, we will be unable to post our next "Melman Minute" until Monday, June 11.