A Melman Minute — May 5, 2014
| By | Leonard Melman |
|---|---|
| Date | May 5, 2014 |
Once again we are able to suggest at least two positive interpretations regarding gold's short-term (daily, six-month) chart.
First, gold has broken out above very short-term resistance in the $1,300 area. At the same time, (not shown on chart) gold has exceeded its 200-day moving average.
Next, the length of time since gold's last significant low in late December, 2013 continues to lengthen and has now reached more than four months. In our opinion, the inability of gold to fulfil some of the more bearish predictions for that lengthening duration of time should be regarded as a technical positive for golden bulls.
Of course, these notes relate to short-term action which may indeed be related to the increasing level of perceived crisis in the Russian/Ukraine struggles but nevertheless, gold is failing to make new relative lows - and that appears to me to be a favourable indication of better things to come.
ANOTHER INTERESTING CHART
If we are to work on the assumption that gold is indeed building technical strength, it would be helpful to receive confirming information supporting that contention. When we examine the chart of the "US Dollar Index", it appears to be quite possible that we are indeed receiving just that support.
Please note that the DX chart appears to have formed a pattern that I regard as one of the most potentially bearish technical formations, a "descending right-angle triangle." This pattern is formed by a descending series of tops combined with a horizontal support line - and both of those indicators are clearly present at this time.
If the chart is to fulfil its bearish implications, then the Index would have to break below the three bottoms now clearly evident in the 79.25 to 79.45 zone. Given the number of market technicians who base their trading on chart activities, a strong break below that support could easily lead to a quick and significant drop in the relative value of the Greenback - and historically that kind of decline has been a strong indicator of rising gold and silver prices.
A MOST INTERESTING POLITICAL RACE
Many people look to America's 'off-year" elections this coming November as a true contest between leftist political philosophies calling for 'big' government to intervene both socially and economically and advocates of 'small' government who suggest government should work in the opposite direction. While that American election could indeed carry important implications in its ultimate results, another upcoming election within a much shorter time frame was just announced over the weekend. I am referring to the Canadian Province of Ontario.
For several years controversies have been brewing regarding the ruling (provincial) Liberal Party's activities within that jurisdiction. These have ranged from accusations of wild spending to charges of genuinely corrupt conduct. Matter came to a head over the weekend when the opposition Progressive Conservative and New Democratic Party (NDP) both refused to support the Liberal's new budget and the Premier, Kathleen Wynne, was virtually forced to call for a new election which will take place June 12.
(Unlike the USA, Canadian election campaigns tend to be short, vigorous, and frequently particularly virulent.)
From our point of view, we have strongly supported the notion that big government with all its accoutrements and expenditures generally leads to financial difficulties, inefficiencies and debt - all historically beneficial to the precious metals. At the same time, policies which lead to diminished government interference in both our economic and social lives would appear to be negative indicators for the precious metals.
In our opinion, this Ontario election is shaping up to be one of the most sharply defined electoral contests placing both concepts into direct confrontation that we have seen in recent years and this idea has been taken up by the print media, as illustrated by an article this morning in the highly-influential Globe and Mail newspaper.
According to the G&M, Ontario Liberal leaders are attempting to frame the election as a choice, "...between Ms. Wynne's interventionist economic plans, including the (just announced) Ontario Retirement Pension Plan (ORPP) and Progressive Conservative leader Tim Hudak's government-shrinking version."
The G&M article then cited Mr. Hudak's message in this form: "...that the province's growing deficit is driving jobs away and that only his policies to cut spending and trim regulations can spur growth." This would appear to be confirmed by statements Hudak just made on a national radio program which include this comment: "...Our plan is for smaller government and a bigger economy...High taxes and big spending do not create jobs...if high taxes created jobs, we'd all have two jobs each by now." (Our emphases)
With the Liberals having staked out the leftist position and the Conservatives the rightist one, there appears to be little 'wiggle-room' for the normally Socialistic provincial NDP, but their leader, Andrea Horvath appeared to stay true to form when she told a crowd at an early campaign stop in one of Toronto's working class suburbs that, "...This is a community which suffers from real concerns around jobs, real concerns about the affordability of everyday life, real concerns around transportation needs...We're in this campaign to win." What she apparently failed to do was offer workable means for solving any or all of those problems.
I believe this upcoming election carries a high level of importance due to the clarity of the differences between the major parties and the stated positions of its leaders. In my interpretation, if Hudak can gain a strong victory that may be a valid indication that Ontario's voters are now ready to turn away from high government spending and massive intervention by regulation as a means of government while a Wynne victory would be a clear indication of "government business as usual." (For the moment, I believe a strong showing by the provincial NDP is most unlikely.)
There is also another reason for us to pay particular attention to this election as Ontario happens to be one of the most important mining jurisdictions on Earth. The province has seen enormous mineral development through the decades and continues to offer some of the finest exploration and developmental prospects anywhere. Therefore, the nature of the government which is to rule and regulate the province in coming years could be of prime importance to the industry.
We will be following this campaign with particular interest and will be ready to report on its outcome in just a few weeks.
As of 9:00 AM PDT, financial markets in the USA have rebounded from early sharp selling and now show the Dow Industrials close to unchanged after having opened nearly 100 points to the downside while Canada's TSX Index remains about 60 points lower. Precious metals are higher with gold trading just under $1,310 and silver is 12 cents higher at $19.58 per ounce. Base metals are moderately higher on balance while mining shares are trading close to unchanged.
In other markets, the US Dollar Index is down 5 basis points to 79.52; Crude Oil is off by 59 cents to $99.17 per barrel and the TYX Index of rates on US Treasury 30-year bonds is up by 33 basis points to 3.400%.
All quotes US Dollars unless otherwise indicated.
Next "Melman Minute" scheduled for Wednesday, May 7, 2014