A Melman Minute By: Leonard Melman   August 28, 2008 Gold has been trading higher early this morning, feeding on overnight buying from Asia and Europe.  At its early AM peak, gold was priced as high as (all prices US$) 845 spot and both silver and platinum were also sharply higher overnight, silver ahead by almost 50 cents and platinum up by over $40.  However, it is important to place these moves, particularly gold, in context and for this we will use some of the technical analysis tools available. One of these tools relates to the scope of corrective moves and tells us that a one-third to two-thirds correction of a move is relatively normal and such a correction would still leave the dominant trend intact.  With that in mind, please note that the fall from gold's peak at $1,030 to the recent low at $775 has amounted to a loss of $255.  Therefore, a one-third correction (upward in this case) would amount to $85 - or back up to $860 and a two-thirds correction of the down-leg would carry gold to the $945 area. Therefore, the return move from $775 to this morning's peak of $845 does not yet even constitute an 'official' correction to the recent decline.  Accordingly, while encouraging, we cannot yet ascribe to the recent rally the attributes of even an important correction to the recent declines, never mind a true reversal of those declines and a move toward new all-time record highs.  Technically, that will take more time and much higher prices. By the way, it is interesting - and encouraging - to note that the total advance from 2002 through early 2008 took the price of gold from near $250 per ounce to $1,030 - or a distance of $780 - and a one-third correction of that total advance would have amounted to a decline of $260 to the $770 level, which is almost precisely the move we have witnessed.  Under that interpretation, the correction to the total advance could already have been completed and we would now see a period of base-building before the underlying major bullish trend re-asserts itself and we move ahead to progressively higher levels.  Therefore, the area surrounding the $770 level takes on increasing importance in our observations. Of course, there are no guarantees regarding interpretations of technical analysis, but at least they can provide a framework for price analysis and projections. Clearly, we are in a high-risk, critical time in gold's price history and we would suggest that any investment decisions taken should reflect that reality. - - - - - One of the more curious developments when it comes to economic releases by the American government - still the most influential and important economic body on earth - is the strange combination of reams of data which indicate a rapidly weakening and more vulnerable state of the economy, with the sudden release of important information telling the world how wonderful is their economic performance! This morning brought us yet another dose of this strange juxtaposition with the release of revised figures for the Second Quarter 2008 showing that the US Gross Domestic Product grew at a potent annualized rate of 3.3 percent, a figure consistent with strong economic expansion.  What makes this figure so puzzling, however, is that it follows on the release of earlier data showing that: * - Real estate values are declining steadily, wiping out trillions of dollar of home equity * - Mortgage lending being severely curtailed * - Home sales are far below year-earlier levels * - Auto and small truck sales are evaporating * - Both the number and rate of unemployed persons is rising steadily * - Major corporations are seeing their stock values - and the equity of their shareholders  - fall off a collective cliff * - Bank failures have begin to rise. And yet, we are now told that the economy has been expanding smoothly and steadily!  Perhaps we can be labeled as skeptics, but the combination of these bits of information cannot help but make us a little suspicious, as we have also noted for recent price inflation numbers. All of this makes us believe that if huge numbers of the economic profession as well as the general public come to the belief that American economic figures are worth about as much as so much confetti, that would appear likely to result in a loss of confidence in the economic structure, which historically should result in a positive influence for the precious metals. Just for the record, here are a couple of hard economic numbers worth digesting.  While the U.S. government is assuring the world that inflation is under control, the government-owned Tennessee Valley Authority, a major dispenser of electric power, just raised their rates by 20% in one shot, an increase amounting to an additional $15.80 to $19.80 per month for millions of customers.  This was the TVA's largest single increase in 34 years! Another number with staggering implications is the United States public debt which just passed through the $9.6 TRILLION level, the greatest in history and an increase of almost seven percent in the past year alone.  The answer to the question of exactly why such a dramatic increase is necessary if inflation is under control is best left to American government economists. In our opinion, the underlying economic structure remains vulnerable and the public will see growing signs of that vulnerability over time, based on that conclusion, in our opinion the precious metals could rally with surprising strength later this year and beyond. However, for the moment, the public appears willing to 'glom onto' any positive news and, as of about 9:20 AM PDT, the Dow Industrials are ahead by almost 200 points, the U.S. Dollar has reversed earlier weakness, gold and the other base and precious metals have fallen back from their overnight highs and even crude oil - despite the dangers represented by (about to become) Hurricane Gustav - has declined back to the $115 level.  In Canada, the TSX has turned mixed after a solidly higher opening.   ◄  Previous Minute                                                                                                          Next Minute  ►
		DISCLAIMER The information presented above is based on data which we believe to be from reliable sources, but the accuracy of which cannot be guaranteed.  Any opinions or predictions contained herein are those of the editor and are likewise offered also for information purposes only. Any investment decisions should be made only following consultation with registered investment professionals.