A Melman Minute
| By | Leonard Melman |
|---|
Could we really be in the early stages of a renewed golden bull market? While the evidence is skimpy at best, there is one genuine - but very early - technical positive which has emerged during this morning's gold trading session.
Please note that with this morning's early peak at just under the $1,250 level, the chart on gold shows a clear breakout above the most recent downtrend line. By itself, this may not be of sterling importance, but given the fact that this early breakout is taking place at precisely the same time as the price of gold is flirting with the formation of a long-term double bottom in the $1,180 zone, it offers at least a glimmer that 2014 holds some real promise for substantial improvement in the precious metals prices.
TERRORISM - ON THE RISE IN 2014?
One of the most important factors which led to the 1976-80 golden bull was international terrorism which many feared could lead even to direct conflict between America and the then- powerful Soviet Union.
With that in mind, please consider the fact that one of the most important criticisms proffered against the Obama Administration's foreign policies has been the interpretation that massive American military withdrawals which have taken place from both Iraq and Afghanistan might be opening the doors to a strong resurgence of international terrorism in those and neighbouring nations, a resurgence which could indeed be strengthening the hand of organizations such as All Qaeda.
Recent news out of the Middle East shows that those fears may not be at all unfounded. For instance, in an op-ed piece released this morning, Max Boot, a senior fellow for the Council on Foreign Relations, observed that a decline of over 90% in violence in Iraq occurred during the American occupation and that decline offered "...an unexpected opportunity to build a stable, democratic and prosperous country in the heart of the Middle East. It is now obvious that this opportunity has been squandered with tragic consequences for the entire region." He then goes on to note that Al Qaeda is currently fighting to gain control of the area around the important city of Mosul and if that happened, "...Al Qaeda would gain effective control of the Sunni Triangle, an area north and west of Baghdad the size of New England." (Our emphases)
We also learn that the number of conflict deaths in Iraq soared to almost 9,000 during 2013, the highest total since 2008, and car bombings are occurring so frequently that they barely even make the news.
Boot then observes that Al Qaeda's ability to bounce back from near-defeat can be laid at the feet of the America's recent policy which led to that country "...pulling its troops out of Iraq at the end of 2011 after the failure of half-hearted negotiations overseen by Vice-President Joe Biden."
Al Qaeda is advancing not only in Iraq, but their influence is reported to be on the rise in Syria, and, as an offshoot of that increase, they appear to be introducing new pressures in Lebanon which could possibly devolve into another regional civil war. An AP story on Sunday told us that Al Qaeda claimed responsibility for a recent suicide bombing in Lebanon which killed five people and pledged more such attacks.
The rise in terrorism is also infecting Egypt where new struggles for control of that nation claimed 17 people over the weekend.
These indications of heightened struggles in a volatile part of the world should not be overlooked, particularly in light of the fact that the Middle East remains the greatest single supplier of petroleum to much of the world.
A LOOK AHEAD FOR EUROPE
While many observers concede the vital economic importance of North America and Asia to the world's economic structure, the vital importance of Europe should not be overlooked. As a total community, Europe holds more than 500,000,000 people in some of the most economically important nations on earth. Collectively, their total economic activity is on par with the other two blocs.
Therefore, it is of more than slight importance that cries for a fight against DEFLATION appear to be gathering strength, with the potential result that policies of 'austerity' might be diminished with a subsequent increase in fiscal stimulation across the region.
Data has shown that a remarkable deceleration of reported rates of inflation took place across Europe during 2013. Those nations with the fastest rates of inflation, including Finland, Germany, Austria and Netherlands had a collective average rate of only +2% while a host of nations including Spain, Portugal, Latvia, Cyprus and Greece experienced negative inflation (deflation) during the year.
As a result, calls are escalating rapidly for measures to be taken against this deflationary threat. One of the leaders calling for such actions is Jean Pisani-Ferry, head of France's economic policy planning council who fears that as a result of deflation, any European malaise could affect economies elsewhere in the world and threaten "subdued commodity prices."
Our estimate, looking forward, is that pressures will continue to build for sharply easier fiscal policies by the European Central Bank and, by historic measures, such pressures should accrue to the benefit of the precious metals.
TOFINO - AN ENVIRONMENTAL MICROCOSM
For those not familiar with the place, Tofino, B.C. is one of the most stunningly beautiful vacation destinations to be found, being located on a peninsula surrounded by the Pacific Ocean and set in the midst of inlets, forests, lakes and mountains. Because of this beauty, the town has been home to a particularly rabid group of environmentalists.
True to character, the town council last week issued a statement in opposition to the proposed Northern Gateway pipeline which would transport oil from the vast fields in Alberta through British Columbia to port facilities on the Pacific for further shipment by tankers to the world's markets. Tofino environmentalists fear that the potential damage from a tanker spill could ruin their sensitive area and have thus stood out in opposition to that project. It is also worth noting that the same environmental community has taken stands against rail shipments of oil, trucking of oil over vast distances, nuclear power and coal burning for power generation.
However, town realists are beginning to come to grips with a problem. Tofino is located on the edge of the continent and the only access to the town by hordes of tourists upon whom the community depends, other than a tiny airport capacity, is by a narrow, twisting road from the community of Port Alberni, some 135 Km (80 miles) distant.
The obvious question then is where the gasoline to fuel the thousands of vehicles carrying needed tourists is going to come from if virtually every possible mode of transporting crude oil from production fields to refineries is fought tooth and nail?
I believe a trend toward regulatory sanity may be one of the unexpected positive features for mining (and society in general) during 2014. Also aiding in some environmental re-evaluation is the fact that the "Global Warming" concept is lying in shreds and tatters as the world has been living through some of the coldest and most brutal evidence of Global COOLING during the past several months and years.
Since regulatory difficulties lie at the heart of many of the junior miners' most severe difficulties, an easing of this situation could produce some real fiscal and operating benefits.
As of 8:45 AM PST, financial markets in Canada and the USA are heading lower with the Dow Industrials down by about 45 points while Canada's TSX Index is off by around 70. Precious metals are moving moderately higher with gold now trading near $1,240, up by $3 while silver has gained 10 cents to $20.35. Base metals are off by an average of .5% while mining share indexes are ahead by just under one percent on balance.
In other markets the US Dollar Index is down 15 basis points to 80.81; the price of Crude is down by 28 cents to $93.69 per barrel and the TYX Index of rates on US Treasury 30-year bonds is once again retreating from the 4% level, down by 37 basis points to 3.893%.
All quotes US$ unless otherwise indicated.
Next "Melman Minute" scheduled for Wednesday, January 8, 2014