A Melman Minute
| By | Leonard Melman |
|---|
NOTE: It has been a distinct honour to have received an invitation to address the Financial Conference at the giant PDAC convention, the world's largest annual mining gathering, scheduled for March 2-5 in Toronto. My time slot is set for 9:30 AM, Sunday, March 2. We certainly invite all convention attendees or other readers residing in the Greater Toronto Area (GTA) to attend.
As we pause to take a mini-break, so to speak (see "Personal Note" below) it is well worth noting that the year 2014 has been very favourable to our world of precious metals mining. As the charts below indicate, so far this year gold has rallied by over $150 or about 12% while silver has advanced by a relatively stronger $4.00 or about 22%. In addition, the major mining share indexes have also shown strong advances.
These advances have not taken place within a vacuum as the fundamental background has seen some improvements as well. Some considerations include rising petroleum complex prices; increasing international terrorism; a trend in many governments back toward spending and away from austerity; simultaneous economic and currency difficulties in several emerging nations; rioting and disorders in countries such as the Ukraine, Venezuela and Thailand; and a growing reality that interest rates may be soon headed higher with unknowable consequences.
Despite these improvements - and they are by no means minor - I have one significant concern of a technical nature and that relates to the long-term chart of gold.
As can be clearly noted, the chart has formed a clear "double bottom" attained first near $1,180 in late June, 2013 and again, at almost precisely the same number, in late December. As reported previously, this "double bottom" in gold of 2013bears a distinct similarity to one created by the general securities market during 1974 when the Dow Industrials twice bounced off the 570 mark with approximately six months between each bottom.
When that bottom 'held' and the securities markets turned decisively higher, that initiated the onset of the greatest securities bull market in history, ultimately rising from under 600 to over 12,000, finally culminating in a tidal wave surge led by 'dot.com' companies which was literally breathtaking - before it all collapsed in 2000.
The question then, one which has yet to be resolved, it whether this golden double bottom will hold and gold will advance and finally establish new historic highs - or whether gold will descend below the $1,180 mark which might then initiate severe additional declines.
That question will be our focus for the remainder of the year and is one of the reasons we are so eagerly anticipating the upcoming PDAC convention in Toronto from March 2-5.
US DOLLAR - AT A CRITICAL POINT?
Along with the chart of the price of gold, another of our critical interests is the performance of the US Dollar as measured by the US Dollar Index. The obvious reason for our concern is the reality that performance of the Greenback is frequently a counter-measure to the performance of the precious metals. Ergo, as the US Dollar weakens, the precious metals advance and vice versa.
For two years, the Index has been drifting sideways, trading in a range of 79 to 85 and it is our opinion that the eventual breakout from this range could point to a significant move - in the opposite direction - for the precious metals. Present chart points we are watching are support in the 78-79 area and resistance above 85.
Fundamentally, we believe that the odds appear to favour an ultimate break to the downside as the political winds seem to be pointing toward a political move toward easing of previous restrictive actions in the USA and elsewhere. Given that the American economy constitutes the world's largest, we note three specific events of note.
First, the appointment of liberal economist Janet Yellen as the new Fed chief strongly suggests that it is unlikely that the Fed will risk an economic downturn by failing to provide for the financing of any debt levels and deficits demanded by Congress. Second, President Obama has just signalled his own personal move toward accommodation by announcing that previously endorsed measures to limit government spending will now be reversed. Third, the Republican Party has apparently given up the austerity fight once and for all and is now in a stance where fear of angering voters by demanding austere measures has overtaken dogmatic resistance to further government encroachments as their primary motivation.
These questions will be our primary focus in the weeks and months to come.
As of 4:30 AM PST, weekend indicators are showing a relatively neutral set of security market openings in both Canada and the USA while precious metals are continuing their advances with gold trading as high as $1,337 and silver crossing above the $22.00 level. Both figures represent year-to-date highs. Currency and petroleum markets appear to be trading little changed at this early hour.
All quotes US$ unless otherwise indicated.
Next "Melman Minutes" schedule as indicated below.
PERSONAL NOTE:
For these reasons, I will be traveling by train to PDAC in Toronto and then to an additional speaking engagement in Chicago on my return trip. The one drawback is that I will be unable to forward "Melman Minutes" while on the trains as long-distance train travel does not allow for WiFi services. Accordingly, this will be our revised "Melman Minute" schedule for the next two weeks:
Monday, February 24 (today)
Monday, March 3
Wednesday, March 5
Friday, March 7, with our normal schedule to be resumed in subsequent weeks and months
PLEASE NOTE : The schedule will be maintained to the best of our ability. eMail notifications will also be suspended until our regular schedule resumes. Please check our website for updates.
I am truly looking forward to this year's PDAC for reasons aside from having the opportunity to present my personal views to the convention on Sunday morning at 9:30 AM. Our world of precious metals mining is at an important crux and it will be most interesting to learn of various points of view from my valued colleagues, international mining leaders and from mining industry experts.
An attendance in the range of 30,000 people is expected and PDAC 2014 should provide a grand time for all. I can only urge that anyone who is able to attend should do so. The mining company exhibit areas and Financial Conference presentations are free of charge to the general public.