A Melman Minute — June 24, 2011

Due to the extreme pressure of hard deadlines combined with preparations for our forthcoming trip to Guyana, South America, this mornings Melman Minute must, of necessity, be both late and brief.

Our primary focus remains on the gold market which has been hit with waves of selling over the past two days, selling which has driven the price down at times by over $50 per ounce back to near the $1,500 level. This has been doubly frustrating because, as noted in our MM of this past Wednesday, gold was acting in a particularly bullish manner and appeared ready to break out above the previous high level just under $1,580 per ounce set just a few months ago.

A combination of reasons appears to lie at the heart of this selling. First, Fed Chairman Bernanke made some very pessimistic (for him!) comments about the American economy and this seemed to reduce inflationary fears, at least for the time being. Next, the crisis over Greeces imminent debt defaults worsened, leading scared money to invest in the presumed safety of U.S. Dollar denominated government bonds, allowing the dollar to gain sharply in value while the price of many commodity items priced in Greenbacks fell backward. Third, word spread that 60,000,000 barrels of petroleum were about to be released from various oil storage facilities, and this caused the price of crude to drop sharply (see chart).

|Financial markets plunged steeply after this news combinations hit the airwaves with the Dow Industrials down at one point yesterday by well over 200 points, but then optimism that the problems were not as severe as first feared took over and that average rallied to close less than 60 points to the downside while Canadas TSX Index closed off by about 150 points and both averages are down moderately so far today.

There is one relatively bright indicator for the metals this morning and that has been the comparatively solid performance by the mining share indexes. Despite heavy selling in both gold and silver which brought the price of both metals to below previous short term bottoms, the XAU Indexs decline has been truly moderate.

As of 10:50 AM PDT financial markets in Canada and the USA remain relatively weak, precious metals continue to trade sharply lower, base metals are close to unchanged on average and mining share indexes are down slightly. The US Dollar is showing renewed strength, the price of Crude Oil has dropped to barely $90 per barrel and long term interest rates are continuing their recent declines.

All quotes US$ unless otherwise indicated.

Next weeks Melman Minute schedule is somewhat uncertain due to our upcoming trip to Guyana, South America. If Internet connections are available at our hotels in Barbados and Guyana, we should be able to stick to schedule, but if connections are uncertain or completely unavailable, then please accept my apologies in advance.

It will be very interesting to personally examine mining along the north coast of South America, an area garnering increasing attention in recent years. Will report my observations as able.

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