A Melman Minute
| By | Leonard Melman |
|---|
NOTE: Mr. Melman will be a featured speaker at the world's largest annual mining convention, PDAC, to be held in Toronto from March 6-9. His address to the Financial Conference will take place near noon on Sunday, March 6 and will be entitled, "The Greatest Gamble of All." More than 900 companies will be exhibiting at this gathering with total attendance expected to reach the 22-25,000 level.
STATEMENT OF POLICY AT THE MELMAN REPORT
Throughout the years, one of the primary contra predictive indicators of gold's performance has been the U.S. Dollar Index. In historic terms, as the Greenback strengthens, gold has a tendency to perform poorly while weakness in the Dollar Index has frequently been mirrored by strong performance in gold, as well as silver.
Please note that the 25-year chart of the Dollar Index (DX) reflects this reality quite clearly with that Index having been in a general decline for the past decade while gold has advanced from barely $250 per ounce to a new record high of $1,439, attained earlier this morning (see revision below). We also believe that the appearance of the chart suggests that a breakout to the downside in the DX is a growing possibility. But there is another particular set of circumstances that are worthy of particular note.
The end of the dollar rally from 1996 through 2001 was marked by three monetary and fiscal policy initiatives. First, when the negative economic implications of the "dot-com" bust became obvious, then Fed Chairman Greenspan drove short-term interest rates to their lowest levels on record and, with only one temporary lapse, they have been held at unusual (to put things mildly!) historic lows since.
Second, in order to stimulate economic activity, the American Congress has run the highest deficits ever recorded, resulting in an astronomical growth of the United States government debt.
Third, and influenced by both of the above concepts, in order to further "stimulate and rescue", present Fed Chairman Ben Bernanke (otherwise known as "helicopter Ben" for his advocacy of loose monetary policies in a time of crisis) has initiated two programs which have been named "Quantitative Easing 1" (QE1) and "Quantitative Easing 2" (QE2). Both of these outright unbacked fiat money creation schemes have alarmed conservative and libertarian forces around the world and have raised the all-important question regarding whether the United States Dollar should even remain as the world's Reserve Currency.
And so, it would appear to be vitally important that we pay close attention to these three forces, namely whether interest rates are being held at extreme low levels; whether the American Congress will continue with policies resulting in huge annual deficits and resultant massive increases in debt; and whether continuing instances of Quantitative Easing will take place.
Our opinion results from a truly long-term concept. At TMR, we believe that the situation is much direr than might appear obvious. Many observers still believe that the only required remedy is to get a handle on government spending and all else will fall into line. However, they are forgetting that steady growth in government spending has been an integral part of government activities in America and other important nations for EIGHT DECADES and has become interwoven throughout many economic societies.
Any attempt to seriously reduce such spending cannot help but have serious, perhaps dramatic consequences to the standard of living to which much of the world has become accustomed. We are already seeing reports out of Ireland that massive waves of emigration are now taking place as government has barely begun to enforce austerity measures in that once-prosperous nation. Greece appears to be a tinder-box, waiting to explode. No one can safely predict what will happen as similar measures are enacted in nations such as Italy, Portugal, Spain, Poland, Lithuania, Belgium - and perhaps even the mighty United States of America, the world's largest economy.
In addition, open wars are now taking place between once-powerful civil service unions and politicians representing the majority of voters who elected them for the clear purpose of reducing spending and intrusions by government.
The entire situation is growing increasingly volatile and we believe it has only begun. Accordingly, we continue to believe that precious metals will trend higher over both the near and intermediate terms and we continue to suggest the holding of both the precious metals themselves as well as their associated investments.
(Please note our disclaimers elsewhere on this site, particularly observing the strongly stated advice that no investments should be made without prior consultation with registered investment professionals.)
Due to forecasts of a particularly violent windstorm in our area later this morning, this "Melman Minute" will be transmitted earlier than usual as the potential for a power blackout is very real. As of 8:00 AM PST, financial markets are trading within relatively narrow ranges with the Dow Industrials up by about 55 points while Canada's TSX Index is down by 10.
Gold, silver and the petroleum complex are the primary newsmakers as the yellow metal has just touched the $1,440 level for the first time in history while silver continues to set and re-set three-decade highs and now trades at just under $35.00 per ounce. Base metals are little changed on balance this morning as are mining share indexes.
On the petroleum side, the April Crude Oil contract has just broken above the $100 per barrel level and the Unleaded Gasoline contract for April has just broken above $3.00 per gallon, a move reflected in rapidly rising gasoline prices throughout the USA. The US Dollar continues to show weakness while long-term interest rates are moderately higher.
All quotes US$ unless otherwise noted.
Next "Melman Minute" scheduled for Friday, March. As of this moment, we believe quality Internet connections should be available at PDAC, so we anticipated posting these reports from Toronto both Monday and Wednesday of next week.