A Melman Minute — June 17, 2011

Greetings from the Shining Tree Camp mining area is northern Ontario located between Sudbury and Timmins, both major mining centers.

Overnight news has been focused on the growing crisis in Greece, one which appears to have the potential to become a major international problem. For those who have not been paying close attention, Greece is now faced with the maturity of existing debt within the next few months and they simply do not have the funds to repay that debt. In other words, they could, quite literally, default on that debt, thereby becoming the first major nation to fail in such a manner for several decades.

One of the great difficulties is that Greece is already head-over-heels in debt, they have recently been rescued from previous potential default and the rest of the world, particularly the European Central Bank, is having a great deal of trouble justifying further funds to rescue Greece from its present dilemma since these loans to Greece have taken on the appearance of 'throwing good money after bad'.

Greece has just fired their finance minister and the Greek President has taken over the Finance Minister's functions, at least for the time being. In the meantime, the International Monetary Fund and other agencies such as the ECB have demanded that Greece enact stringent austerity measures to bring spending at least closely into line with valid taxation revenues but the Greek public, already facing a 16% unemployment rate, is loath to accept any government tightening of spending and rioting has already taken place in Greek cities.

The situation appears to be growing out of control and threatens the very existence of several international banks should default occur and four Greek banks have now been down-graded by bank rating agencies.

In our opinion, this volatile situation and the inability of the international community to find a workable solution which has a hope in Hell of restoring both stability and prosperity in Greece, is long-term bullish for the precious metals.

In other news, both the Federal Reserve Bank in New York and its counterpart in Philadelphia have issued statements that the manufacturing economies in both areas are slowing down, putting further pressure on the Fed itself to adopt more accommodative policies, meaning further deficits, further money creation and, in our opinion, further upward pressure on future inflation.

We regard that as another long term plus for the precious metals markets.

In the meantime, the reports from the Federal Reserve banks and other reporting agencies are beginning to indicate that a genuine slowing of economic activities may indeed be taking place and the price of petroleum is beginning to reflect such concerns, resulting in a sharp decline in the price of Crude Oil, now trading close to $94 per barrel, sharply below its recent high of $110.

Regrettably, we must leave early this morning to catch our return flight to the west coast, so it is necessary to conclude this Melman Minute prior to the market openings. However, in overnight trading the precious metals are close to unchanged with gold near $1,527 and silver in the mid-$35 range, financial markets are looking a little stronger and the US Dollar slightly weaker in currency trading.

All quotes US$ unless otherwise indicated.

Next Melman Minute scheduled for Monday, June 20, 2011

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