A Melman Minute — January 31, 2008

It is said that imitation is the sincerest form of flattery. If that is so, your editor cannot help but feel more than slightly flattered this morning.

In our monthly column for the January 2008 edition of “ICMJs Prospecting and MINING Journal”, actually prepared about December 11, 2007, we wrote the following predictions for 2008:

“Therefore, we look to 2008 as a year when escalating troubles become visible to the entire world, with the potential for a major public rush into the precious metals by late 2008. While risky, we therefore see the following peak prices for the three major precious metals during the latter portion of 2008:

Gold - $1,500 per ounce

Silver - $25.00 per ounce

Platinum - $2,000 per ounce.

We shall see.”

These predictions were repeated and discussed with attendees at the recently-concluded Cambridge House Resource Conference held in Vancouver January 20-21. It must be noted that, compared to other speakers and analysts, our predictions were regarded as unusually, perhaps even recklessly optimistic.

Imagine our surprise when we noted an article prepared by “Canwest News Service” which quotes the fact that National Bank Financial, one of Canada’s largest investment dealers, has just boosted its target price for gold to, “…$1,500 US within the next 12 to 18 months…” Their primary reason appears to be that gold, “reasserts its status as a safe haven in troubled times.”

We are certainly NOT suggesting any sort of plagiarism on their part, merely that it is most agreeable to have authoritative company along this increasingly uncertain and dangerous road.

An event of surpassing importance took place yesterday with the announcement that the Federal Reserve Board was dropping interest rates in the U.S. by an additional one-half percent on top of the three-quarters percent announced the previous week. Two such powerful reductions within days of each other is virtually unprecedented - and, in our opinion, validates the extreme concern the Fed has regarding the status of the American economy.

As can be seen from the accompanying short term chart of the Dow Jones Industrial Average, markets have reacted violently IN BOTH DIRECTIONS to this news. In fact, the pattern left behind over the past four hours of trading represents nothing other than a wild roller-coaster ride.

The announcement was made at 2:00 PM EST (11:00 AM PST) and the Dow immediately shot up from 12,430 to over 12,600 in less than one hour (each bar represents five minutes). After a short selling wave, the Dow continued upward to almost 12,700 or a net gain of well over 200 points on the day. However, it immediately changed direction and during the last trading hour of yesterday plunged by over 250 points to close with a net LOSS of almost 40 points.

This morning, the Dow continued lower at the opening, reaching 12,270, or a loss of 165 points in the first few minutes, before turning up once again, and by 11:40 AM EST (8:40 AM PST), the Dow had advanced by over 180 points from its lows and was actually in plus territory.

Apparently, there are two distinct camps. The first seems convinced that the huge interest drops are just what the American economy has needed and those investors have become strong buyers. The opposite camp is decidedly concerned about the negative consequences of such ‘loose money’ policies and presumably fears consequences such as rising inflationary expectations along with further, perhaps MUCH FURTHER, weakness in the U.S. Dollar.

One beneficiary of the former opinion has been the base metals as expectations of increasing economic activity have driven zinc and lead sharply higher; zinc from under one dollar to about $1.09 and lead from near $1.10 to over $1.24 in just the past few days. Copper is once again approaching $3.30 per pound and nickel is back above $12.20.

Precious metals are mixed. Gold has made short term moves similar to those of the Dow Industrials, rising from $918 to over $930 yesterday, then falling back to $918 and recovering to near $924 this morning. Platinum is once again trading near historic highs, having reached the $1740 per ounce level today and silver is also strong, trading near $16.80 (all prices US$). Crude oil is down about $2.00 to near $90 per barrel while the C$ is weaker, once again below par with the Greenback.

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.

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