A Melman Minute — December 26, 2007

As we write this, there are but four trading days remaining in the old year; today, Thursday, Friday and an abbreviated session on Monday and, if today is any example, the markets are setting themselves up for a spectacular 2008. Whether that is spectacularly bullish or spectacularly bearish remains to be seen - but, in our opinion, large and significant moves definitely appear to be in the offing.

Gold is the star of today’s markets, rising $12.00 on the day (after two hours trading) with spot reaching $824 and the other precious metals are also advancing with platinum reaching a new historic high near $1,540 per ounce, palladium rising to over $360 per ounce and silver once again approaching $15.00 per ounce. Not surprisingly, major metals indexes are also advancing with both XAU and HUI up by about two percent so far this morning. (All prices in US$)

It is not only precious metals that are putting in stellar performances, as the entire petroleum complex is sharply higher with crude touching $96 per barrel - within $2.00 of its historic high set last month - heating oil above $2.65, a new seasonal high, and gasoline over the $2.50 per gallon mark, a new multi-month high. As we pointed out recently, these advances are all the more remarkable because two of the supposed forces driving petroleum prices higher have been absent, namely possible hurricane damage to the Gulf of Mexico petroleum production and refinery complexes and direct threats from Iran to interrupt the flow of oil through the Straits of Hormuz. Despite relative meteorological and international tranquility, crude appears headed for a breach of the one hundred dollar per barrel psychological barrier.

Two stories worthy of note this morning come from the world’s largest brokerage corporation, Merrill Lynch, who just announced they have received a $5.6 billion cash infusion from a Singapore Corporation, Temasek Holdings PCE,. Rather than rallying on the news, (see chart) Merrill began to weaken once it was revealed that, as part of the deal, Temasek was able to acquire a 9.9% interest in Merrill shares at a 14% discount from the market price.

In a related story, brokerage houses have informed their employees that in many cases, the traditionally high Christmas bonuses will be substantially lower this year due to the ongoing credit crisis - and Merrill Lynch employees have been particularly hard hit. This will be a blow to high-end businesses in New York as it has become a tradition for high-earners in banking and brokerage to use their bonuses to purchase luxury autos, jewelry, cruises and other perks. Smaller bonuses mean less such purchases - and fewer jobs for those who provide them.

Such news, combined with the fact that retail sales during the Christmas season were less robust than had been hoped for, sent the U.S. Dollar lower with the Dollar Index dropping by a large 44 basis points to just above 77, and this weakness in the Greenback was clearly a positive factor for the moves in the precious metals and petroleum complexes.

Securities markets in the USA were moderately lower in early trading with the Dow Industrials down by about 30 points while markets in Canada remained on vacation, thanks to the Boxing Day holiday.

Base metals markets in London remain closed for Boxing Day, so no reliable quotes on their price movements are presently available.

It will be most interesting to note whether the sharp rally in precious metals carries over through the rest of the week. If it does, the odds would appear to increase that the month of January could see January could see a shattering of the old record price for gold - as measured by the afternoon London Fix, of $870 set during 1980.

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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