A Melman Minute — April 6, 2011

I almost feel sorry for those "doubting Thomas's" who keep looking for a major pullback in the precious metals. Not only are they suffering trading losses if they are acting on their own predictions, but the majority of these skeptics seem to be unwilling to alter their positions.

We will state ours clearly, so there is no doubt. At TMR, we believe the gold and silver bull markets are not only continuing, but a period of rapidly accelerating prices is likely to occur in the second half of this year and into the next year as well. The major problems which are afflicting the international economic community are not being resolved; debt mountains continue to grow higher and debts of government are never paid off from income but are only rolled over in larger amounts into the future; price inflation is now beginning to take hold; the European Economic Community is facing a deepening cycle of enormous difficulties and now interest rates are on the rise once again.

How anyone looking at that mixture can come to the conclusion that the type of stability and prosperity typical of a gold and silver bear market is going to occur is beyond us.

So, we will stick with our positions and also remind readers of our caution that no investment positions should be taken without prior consultation with a registered investment professional.

Crude Oil has just traded above US$111 and is approaching $112 per barrel..

U.S. Treasury bonds are suddenly falling sharply and 30-year rates have moved upward by almost two-tenths of a percent in just a few days.

The US Dollar Index has just broken sharply to the downside, trading at 75.25, the lowest level in many months.

Lumber quotes have suddenly plunged by over $80 per contract in just a few weeks, presumably because of those rising interest rates which could abort any housing or construction recoveries.

Strangely enough, securities markets continue to hold near three year highs. As we have noted before, the real consistency between the two markets will likely show up either by gold and silver soaring or the securities markets falling - or both at the same time.

The other most important story of note is the sudden revelation that the bailout of Portugal, not surprisingly, is going to cost much more than had originally been anticipated and now appears to be in the region of one hundred twenty billion Euros. No one is at all sure where these funds are to come from.

Most ominously, the potential default of Spain on their mammoth debt is now the "elephant in the room" that no one wants to speak about. However, we can only note that at this time, we are receiving assurances that Spain will not default, and that all is well. Seems we heard exactly the same manner of statements coming from Greece, Ireland and now Portugal precisely in the time frame before defaults occurred.

Skeptics that we are, we offer the prediction that sometime in the medium future (12-24 months?) Spain will default, that rescuing them from their mammoth debt will be beyond the European Economic Community's capacities and a full-blown monetary crisis will take place, one which will help gold move to ever-higher levels over time.

As the weekend approaches, there appears to be no resolution to yet another crisis, namely the approach of the Authorized Debt Limit, now just a hair breath away.

Markets this morning continue to move along the same patterns noted above. As of 8:00 AM PDT, the Dow Industrials are down by about 20 points, gold and silver are trading near $1,472 and $40.40 per ounce respectively, base metals and mining share indexes are higher, crude oil has soared to near 112 per barrel, the US Dollar Index is trading near daily lows and long term inter4est rates continue to head higher.

All quotes US$ unless otherwise noted.

Next Melman Minute scheduled for Monday, April 11.

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