A Melman Minute By: Leonard Melman   NOTE:  In order to complete Mr. Melman's forthcoming book on the essential fundamentals of gold and silver, new "Melman Minutes" will be posted only three times per week, each Monday, Wednesday and Friday until about mid-January 2009.  The working title of the book will be 'Eight Pillars of Gold." September 02, 2008 Well, Armageddon simply didn't arrive.  Hurricane Gustav, which was forecast to wreck havoc on the City of New Orleans and the Gulf of Mexico petroleum delivery systems, turned out to be a moderate, but non-catastrophic event with a wee bit of flooding and some relatively minor property destruction.  But it never turned into the monster that New Orleans Mayor Nagin and the U.S. weather forecasters had predicted. Just as markets react when catastrophes occur, this morning they are reacting - quite predictably - when an anticipated catastrophe does not occur.  Since the main threats to the petroleum markets were interruption of production from Gulf wells and destruction of refining facilities along that coast, when the looked-for destruction did not occur, petroleum prices fell like a stone.  Near 7:30 AM PDT, oil was down by almost (all prices US$) $8.00 to the $108 level.  That decline, in turn, caused precious metals prices to fall sharply with gold off over $25, silver down by almost a full dollar and platinum off close to $100.  Base metals prices fell sharply as well.  All of this affected financial markets with the American markets soaring on all that 'good news', causing the Dow to rise by over 200 points, while the resource-heavy Canadian TSX fell by about 250. Not surprisingly, given the sharp declines in both precious and base metals, the mining share indexes fell sharply, with the XAU down over 10 points at the opening and the HUI off by over 20 - both representing average declines on the order of six percent in the first few minutes of trading! The declines in the metals represented a disappointment in yet another way.  Many commodity traders look to what is known as 'seasonal factors' in determining their trading strategies and, particularly in relation to gold, the late-July through the end of September period has been a positive time on balance.  One of the fundamental reasons is that jewelers normally buy significant quantities of gold during the August-September period in order to build up their stock prior to the heavy Christmas selling season. Don Vialoux, technical analyst for the Financial Post, discussed the topic of seasonality in a recent ar6ticle and noted that "...the (seasonal) trade has been profitable eight out of the last ten years.  Vialoux stated that gold had recently given such a buy signal in the second week of August. Our belief is that while the events surrounding Hurricane Gustav may have put a crimp in gold's recovery rally from its recent lows, as long as the prior low near $775 holds, the strong seasonality factor could yet move gold higher over the next several weeks at least. What concerns us even more than Hurricane Gustav - and his lack of 'virility' as it were - are developments in Asia.  As long-term readers know, one of the most powerful fundamental arguments in favor of higher precious and base metals prices has been the anticipation of continued robust growth in the Asia economies, particularly those involving China and India, but also including economic giant, Japan, currently the world's second largest economy.  Japan's giant consumer-driven productive manufacturing empires are huge consumers of raw materials, including base metals, and the Japanese also have a history of affinity to precious metals investments. Therefore, it is no matter of small concern when the Prime Minister of Japan unexpectedly and suddenly resigns from office, which is what occurred over the Labor Day Weekend with the departure of Yasuo Fukuda.  Japan is already grappling with a possible recession combined with rising inflation and Fukuda's resignation could hardly have come at a more inopportune time.  The Nikkei Index reacted by falling to 12,600 in overnight trading, almost 5,000 points below the level of one year ago. One possible result of the spreading gloom regarding Japan's economic future will be the creation of a new stimulus package in Japan.  In fact, Reuters News Agency just reported that, "...Mr. Fukuda's likely successor, ruling party executive Taro Aso, is seen as someone who could boost the size of the government's just-launched spending package..." As we have been noting for some months, a picture of world-wide economic troubles continues to emerge.  Growth rates are slowing in China and India, stock markets in Shanghai and Bombay are declining, Japan is beginning to encounter widespread problems, Europe's economies are wavering and South Africa's internal structure is beginning to become uncertain. And here we come to another pillar of the argument for gold's future.  Historically, when governments encounter declining economic conditions, they fight back with economic stimulus packages which are usually accompanied by fiat monetary creation.  That monetary creation frequently results in diminishing values for those fiat currencies - and those diminishing values can be reflected in rising prices for gold, silver and the other precious metals. This pattern appears to be holding.  We have seen massive stimulation of the American economy by the mailing out of government checks this past May and by the bailing out of financial institutions on an almost unprecedented scale this summer.  Now, we learn of Japan's stimulative activities as well and, in addition, the U.K. just announced a major program to rescue the UK's struggling home-owners, including tax cuts and spending increases. In our opinion, it seems to us that, over time, the precious metals could profit in two ways.  First, if all the stimulative measures fail and the world's economies decline into full-scale retreat, the ensuing panic could drive many cautious investors into the historically presumed safety of gold.  Second, should the stimulative measures succeed and lift the troubled economies back into increasing levels of productive prosperity, then the seeds of rampant future price inflation are now being sown due to the ongoing high levels of fiat money creation.. Accordingly, for those potential investors willing to accept a high level of risk, this may, in fact, prove to be an opportune time for investors to take new metals investment positions with a view toward the long term. 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		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.