A Melman Minute — February 14, 2011

NOTE: Mr. Melman will be participating in the Cambridge House Phoenix Resource Conference on Friday-Saturday, February 18-19. He will hosting an industry presentation panel on Friday, appearing on a resource discovery panel Saturday AM and conducting a workshop entitled, "The Greatest Gamble of All" Saturday afternoon. Information on the conference is available at Cambridge House's website, www.cambridgehouse.com

Regrettably, this will have to be a somewhat abbreviated Melman Minute today as we have to meet important publication deadlines before departing for Phoenix by car later this morning. However, markets are generally quiet and the news media is resting somewhat after the hectic bursts of information coming out of Egypt during past few days. Unfortunately, it now appears that while the Egyptian disturbances may have quieted down, new unrest is being reported throughout the Arab world including Bahrain, Iran, Libya and Yemen.

Clearly, this whole development is a long way from stabilization.

After reviewing charts of all our important markets, two stand out and both offer continuing evidence of rising visible price inflation.

As can be observed, copper is once again bursting out to a new historic high and now trades well above the $4.60 per pound level. If it holds above that mark the rest of the day, that will mark the highest daily closing price for the red metal in history. It is certainly worth noting that at these prices, active producers of copper will likely post significantly higher levels of profits, all else being equal. Rising prices will also provide a marketing shot-in-the-arm for companies exploring for copper deposits.

Another important inflation indicator, this one relating to the food sector, is coffee and we note that once again, coffee is trading at the highest price in the last fourteen years, rising by a sharp five cents this morning.

The fires of inflation continue to strengthen and we believe that before the end of 2011, the generally complacent attitude regarding inflation now widespread among prominent politicians and economists will become a thing of the past.

The Obama has just released its 2012 budget which calls for spending of approximately $3.7 trillion, combined with a massive $1.6 deficits which would be the highest official deficit on record. We admit to being somewhat puzzled by the combination of developments where spending is supposed to be declining in the new budget, prosperity is supposed to be on the rise, meaning increasing government tax revenues, and yet the Office of Management and Budget is calling for the greatest budgetary deficit on record.

In our opinion, something simply does not add up and we will follow developments on that front closely in coming months.

As of 9:45 AM PST, precious metals are rising slightly with gold now near $1,365 and silver well above the $30 per ounce mark. Base metals are much stronger with gains of 1.5 to 2.0% across the board while mining share indexes, somewhat surprisingly, are posting only slight gains on balance. Crude oil is close to unchanged, long-term interest rates have declined slightly and the US Dollar is a little higher on the session.

The Dow Industrials and Canada's TSX Index are moving along divergent paths with the Dow off by about 10 points while the TSX is riding the strength in both precious and base metals to post a gain of about 150 points so far today.

All quotes US$ unless otherwise indicated.

Although we will be on the road for the next ten days, Internet connections should be reliably available so we believe that Melman Minutes can continue to be posted on their regular Monday, Wednesday and Friday schedule.

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