A Melman Minute — February 28, 2008

Gold is surging once again this morning, and is within $35 (all figures US$) of the previously unthinkable $1,000 per ounce level after 90 minutes of trading. The nature of this new all-time high can be vividly demonstrated by one look at the Streetracks Gold ETF security chart. The ‘95’ level represents a price of $950 and, given that the ETF trades at a discount of about 1.5% to true spot, accurately points to a spot price of $965 as of 8:00 AM PST - the highest ever recorded.

It is also very worth noting that both major mining share indexes, XAU and HUI, are also making historic highs this AM.

Importantly as well is the fact that virtually every other metal is also higher, with silver and nickel putting in particularly powerful performances overnight and this morning, with nickel approaching $14 per pound and silver closing in on the $20.00 per ounce level. Oil is holding above $100 per barrel and the U.S. Dollar, as indicated by the “DX Index” has once again plunged to a record low level with that index haven fallen below the 74 mark for the first time ever.

In our opinion, all of these moves occurring simultaneously have enormous significance. While it would be easy to attribute a strong move in one single commodity to unusual news relating to that one item, for virtually every important commodity to be moving sharply higher at one and the same time would appear to reflect, not just news about the commodities themselves, but a rapid deterioration in the purchasing power of all fiat, unbacked (by gold and silver) currencies.

There has been an important transformation during the life of this gold bull market which began during the period 2000-2002. During its earliest stages, the price of gold rose against the US Greenback, but was flat against other major currencies. However, during the past three years, gold has taken off against every other currency as well. This concept is reflected by comparing the price of gold in several currencies at specific time intervals, as shown by the chart which appears directly below.

These figures illustrate the dramatic change in gold’s relation to other currencies that has taken place during the past three years. As can be seen, the relative move in gold during the first three years, from January 2002 to January 2005, was almost exclusively against the U.S. Dollar alone, as gold soared by almost fifty percent against the Greenback, but was virtually unchanged against the other four.

However, from January 2005 to January 2008, gold virtually doubled AGAINST EVERY CURRENCY!

Thus, we conclude that a powerful and major trend is underway, and that is the debasement of every currency simultaneously against gold.

All of this reminds your editor of one of the most potent comments he ever read in an economic textbook. We are referring to the late Professor Murray Rothbard’s work, “Man, Economy and State.” In his discussion on the ruinous German hyperinflation of 1923, Rothbard notes that, “Germany was able to recover and return to a full monetary market quickly, since it could institute a new currency based on exchanges with other pre-existing moneys (gold or foreign paper.)”

He then adds this possibly very relevant comment to today’s situation…”The chaotic events of the German hyperinflation and other accelerated booms, however, are only a pale shadow of what would happen under a World State inflation.”

No matter how small the odds of the present crisis ‘morphing’ into a full-scale world-wide accelerated depreciation of all currencies, in our opinion, the very fact that it could occur, is sufficient reason for prudent investors to take some insurance positions in both the metals themselves and the shares of companies that are involved in their development and production.

Of course, individual investment decisions should only take place after consultation with registered investment professionals.

PERSONAL NOTE:

Normally, we compose these “Melman Minutes” after about one to two hours of market action in order to make them as relevant to the day’s activities as possible. However, tomorrow AM we have an early flight to Toronto to prepare for the upcoming PDAC Convention in that great city, so our MM for tomorrow will lack early morning figures.

However, we will report on data we have been studying which was recently released by the World Gold Council relating to supply and demand for the yellow metal, and we assure you it is most interesting indeed.

We will endeavor to continue our Melman Minutes during our stay in Toronto as complete Internet and communication facilities will be available.

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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