A Melman Minute — November 2, 2012

On the last evening of the "Silver Summit" in Spokane, WA, a "Speakers and Sponsors" dinner was held. It was a very enjoyable evening, capped off by the emcee asking for a spontaneous prediction from the speakers regarding their outlook for the upcoming American election, now only four days distant.

Virtually all opinions offered contained the comment that this was likely to be an unusually close election, but most prognosticators, myself included, favoured Romney's chances, if only slightly. However, due to some very specific and seemingly unlikely events over the past few days, the President's fortunes appear to have improved, almost by magic.

Just as the Romney campaign appeared to be making new inroads, Hurricane Sandy came on the scene. It turned out to be a major storm after all, killing almost 100 persons and spreading havoc throughout the north-eastern US and into Canada. In fact, news regarding the storm, in my opinion, abetted by a savvy left-leaning media, pushed political news directly into the background and whatever momentum Romney had gained was stifled.

In the meantime, the President had a multitude of opportunities to act 'presidential' by visiting blighted areas, talking about government actions (under his direction, of course) to resolve many problems, and always the cameras were ready to catch fine pictures of Obama as he jauntily strode down the stairway from gloriously-decorated Air Force One. It is hard to imagine a more effective campaign weapon than that magnificent aircraft.

But that was hardly all. There was still the leftover effect from the September jobs report lingering in the air when this morning's jobs report for October provided the welcome (for the Democrats) news that a higher-than-expected 171,000 jobs had been created during the month and, although the Unemployment Rate did advance to 7.9%, the Democrats are able to point to the fact that hundreds of thousands have decided to re-enter the job market.

If that was not enough, the gold and silver markets are now playing into the President's hands as the prices of the precious metals are taking a sizeable 'hit' this morning. Gold and silver are widely regarded as 'thermometers' of economic stability and their declines - short-term though they may be - could be interpreted to indicate that some factors of instability are on the decline.

Most recently, New York's Mayor Michael Bloomberg strongly endorsed Obama over Romney, using Obama's stand on environmental matters as one of his most important points. Given the Mayor's outsized influence in the business community through his "Bloomberg News Service", and the fact that he once was an ardent Republican, this endorsement may indeed carry some outsized weight.

Add in improvement in housing and manufacturing data and it has not been a bad week at all for the President. While I am not ready to throw in the towel, so to speak, and predict an outright Obama victory, it appears that the political winds have shifted in his favour at the most propitious time and, in a very close race, that could be sufficient to provide a narrow victory.

We shall see in just four days.

Along the same line of thinking, I would offer some comments on the impact of the Presidential race in terms of specific legislative outcomes depending on the victor.

While there are stark and significant social differences between Romney and Obama on issues such as abortion, gay marriages, contraceptive services and religion, it is much more difficult to uncover stark economic differences. Certainly, Romney has provided comments relating to balancing the budget, increasing trade, limiting government intervention and so forth, but he has lacked any specificity regarding HOW he was going to accomplish these goals. He has not identified a single government department he would abolish, offered no specific numbers on how many bureaucrats would be axed and suggested no specific pieces of legislation he would seek to reverse - other than 'ObamaCare'.

In my opinion, this lack of specificity has been a mistake because this 'blandness' - for want of a better word - has limited the growth of true excitement among believing conservatives and Romney needs to excite followers to hit the campaign trail in his behalf in order to offset the almost uncountable number of union followers and other Democratic faithful who will be hitting the hustings for Obama.

As a guesstimate, on balance I believe Obama's re-election would be more favourable for the precious metals given his propensity to expand government spending; increase regulatory services and accept unlimited monetary stimulation.

Just four more days………………..

Gold is taking it on the chin, so to speak, this morning with the yellow metals down by about $35 to well under the $1,700 per ounce mark. As noted on the chart, this represents a new low for the current correction and the price of gold is now near a critical level in relation to whether this sell-off is merely a correction to the advance from $1,540 to near $1,800 - or if it is an indication of a renewed bear market breakdown.

The mid-point of the preceding advance is about $1,670 and that is an area we must watch carefully.

Greece is making headlines again and, not surprisingly, they are not of a positive nature. In a story truly reminiscent of the term 'déjà vu', European leaders will be meeting once again in a series of meetings to try and find a way for Greece to not run out of cash before the next round of debt servicing is to take place. The situation is compounded, of course, by the fact that Greece's economy continues to contract while their expenditures are steady to higher, and European leaders are now convinced that the situation simply cannot be remedied quickly, but may drag on for many ears.

The great question in our mind is this: since Greece already has outstanding governmental debts amounting to almost double their national GDP, a level which literally strangles any route of rational escape, will the rest of Europe still continue to want to pour money into Greece and, even if they want to in order to hold the European community together, will the European Central Bank continue to accommodate their wishes?

In the meantime, the current Greek coalition faces a major test as their parliament is now debating a 13.5 billion Euro austerity package which the left wing parties say they will refuse to endorse.

As of 9:30 AM PDT financial markets are trading lower in both Canada and the USA with the Dow Industrials off by about 30 while Canada's TSX Index is down by a sharper 70 points. Gold is off about 2%, down by $35 to near $1,680, while silver is down by a steeper 4%, falling to just above $31.00. Base metals are down by 1-2% across the board while mining share indexes are down by well over 3%.

In other markets, Crude Oil is also headed down, lower, down by nearly $2.00 to just above $85 per barrel while the US Dollar Index is up by 50 basis points and long term interest rates are slightly higher.

All quotes US$ unless otherwise noted.

Next Melman Minute scheduled for Monday, November 5, 2012.

NOTE: I have just printed testimony given at the "U.S. House Subcommittee on Domestic Monetary Policy and Technology" during late 2011 and into 2012. Eminent hard money advocates such as Dr. Lawrence Parks; Forbes columnist Nathan Lewis; James Grant and Professor M. Ebeling have submitted papers in evidence supporting advocates of a return to some form of gold-backed currencies. This material will be thoroughly reviewed over the weekend and I plan to issue a special "MELMANIA" early next week on some of these findings.

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