A Melman Minute
| By | Leonard Melman |
|---|
We are pleased to report that our Sunday presentation to the Financial Conference at PDAC entitled "The Greatest Gamble of All" was well received and we plan to post a transcript of the address on this site before the end of this week.
Speaking of the giant PDAC convention, during the past several years, perhaps by coincidence, the price of the metals has traditionally fallen during this mass gathering. One analysts attributed this to the concept of "selling on good news" and, with many companies reporting excellent discovery results as well as improving earnings for producers, there has certainly been no lack of positive data. However, as seems to happen so often, just when one concept appears predictable, the opposite takes place and, sure enough, gold, silver and petroleum prices all headed higher at their opening prices, although some selling is now taking place. At their morning peaks, gold traded right at $1,445 per ounce while silver stood near $37.00.
Most of this action can be attributed to events in Libya where that conflict continues to escalate and the number of dead has been estimated to be as high as one or two THOUSAND persons. What is also very relevant to traders is the fact that oil shipments out of Libya have declined by about one million barrels per day and Crude Oil markets are also fearful that the level of unrest in other major Middle East oil producing nations might likewise increase.
As a result, Crude Oil prices have surged this morning, reaching as high as $107.00 per barrel, before also coming under some selling pressure while the unleaded gasoline contact for April is approaching historic highs, now standing just under $3.10 per gallon, driving gasoline prices at the pumps upward to $4.00 per gallon in many American locales and above C$1.25 at most Canadian service stations. Many economists are now predicting that millions of consumers will soon be forced to reduce other purchasing activities in order to continue obtaining fuel, which could be predictive of a drop in general activity, something economic leaders around the world are desperate to avoid.
Participants at this convention, the world's largest gathering of miners and their associates, were quick to realize that surging petroleum prices, while they might help to buoy up metals prices, carry some negative impacts of their own by driving up costs for items such as transportation (airplanes, helicopters, motorized vehicles and so forth); hoisting of raw ore, equipment and personnel in underground operations; diesel power generation, etc.
One of the stories we have been following with great interest is the battle between the newly-elected Republican Governor and legislators in Wisconsin on one side and the civil service unions in that state, along with their Democratic supporters, on the other. In simplified version, the new Republicans are attempting to force a reduction in the bargaining power of those unions, while the Democrats and other union supporters want no such retracement under any circumstances.
The issue has come to a head as a result of a Wisconsin law which required a quorum of 20 state Senators before that body can enact laws and there are only nineteen Republican senators at present. Therefore, all the Democratic state Senators have fled Wisconsin and refused to provide such a quorum, but word has now come that they will be returning shortly and will vote, fully expecting the anti-union legislation to pass, but hoping their activities over the past few weeks have swung public opinion back in their favor.
We believe this matter is of considerable importance to the precious metals. One of the factors, we believe, in the bull market for gold and silver has been out-of-control growth in state, municipal and national budget expenditures. If Wisconsin can demonstrate that there is a way to put a cap on these expenditure's growth and even reduce them, that could have a negative impact on any future bull market activity in the metals.
We will continue to follow this situation closely.
For frequent fliers such as myself, the "hits" from the airline industry just keep on coming. Not only are we likely to see the imposition of fuel surcharges, but they have just announced increases in a host of other charges such as baggage fees, charges for early boarding, charges for seat selection, charges for having seats with reclining backs and even for pillows on long flights.
It is also worth noting that in travels to many foreign lands, there is a growing trend toward charging (extorting?) air travelers to enter airports, exit airports and even enter or leave various nations.
One can only wonder how long it will take for a massive rebellion to take place. Such a time cannot be far away if the rising level of verbal grumbling among air travelers is any indication.
As of 7:30 AM PST, financial markets in Canada and the USA are headed higher with the TSX Index up by about 60 points while the Dow Industrials are ahead by nearly 30. Gold has from that earlier selling to just under $1,440 while silver is now near $36.60 per ounce. Base metals are trading moderately lower and mining share indexes have gained about one percent.
In other markets, crude oil is presently trading about $105.50 per barrel, the TYX Index of 30-year USA government bonds has gained to 4.64% and the US Dollar is slightly weaker in currency markets.
All quotes US$ unless otherwise noted.
Next Melman Minute scheduled as a summary report from PDAC this coming Wednesday morning.