A Melman Minute By: Leonard Melman   NOTE: In order to complete Mr. Melman's forthcoming book on the essential fundamentals of the developing international financial crisis and its relationship to gold and silver, new "Melman Minutes" will be posted only three times per week, each Monday, Wednesday and Friday. The working title of the book will be 'Just a Melman Minute!"   November 9, 2009   Markets themselves are the big newsmakers as we enter a new week with gold leading the way, rising to yet another historic high; the Dow Industrials setting a new yearly high figure; the U.S Dollar plunging to a yearly low figure; and mining shares quite literally roaring ahead as if to make up for relative slack time during the past few weeks. Gold's action is once again of particular note for not only is gold setting all-time highs against the U.S. Dollar at an intraday high (so far) of $1,111, but it is also moving strikingly higher against other currencies as well.  For example, with gold at US$1,111 and a C$ worth US$.946, this translates to a C$ price for gold of about $1,175 and we find similar highs against other important currencies as well, bolstering the case that there is an underlying movement among financial circles to increase gold's role internationally. However, it is the relationship between the American financial markets and the U.S. Dollar Index that we find intriguing.  On a surface level, it would appear logical that a strengthening Greenback would go hand in hand with an improving underlying economy, which, in fact, has been the case during several important market moves over the past few decades, clearly illustrated on the two long-term charts appended below. First, the U.S Dollar Index: Next, the long-term Dow Industrials: For example, weakness in the Dollar Index during 1986 foretold the market collapse of 1987 and, in a similar vein, growing strength in the Dollar Index from 1994 through 2000 coincided almost perfectly with what was, up to that time, the greatest bull market run in American market history.  Once again we saw movements in the Dow and the Dollar Index coinciding through most of 2001 and 2002 until an abrupt change began to take place. It was during that period of time when former Fed Chairman Alan Greenspan began his program of dropping interest rates to historic low levels in order to stimulate economic activity as fears were growing regarding an imminent contraction brought about by the securities markets collapse.  We can note clearly that there were two identifiable reactions to Greenspan's actions. First, the stock markets did indeed rally as a result of this stimulation, moving almost relentlessly from a low just above 7,000 to over 14,000 which remains to this day the highest level ever achieved by the Dow Industrials.  However, it is our belief that at the same time, suspicions regarding the long-term stability of the dollar were aroused by the Fed's policies, and the Dollar Index, after enjoying a brief period of strength, plunged steadily toward its lowest levels in history - at the very same time the Dow was rising to record levels.  And now, most recently, we are once again seeing a strong divergence with the Dow moving steadily higher while the American Dollar is plunging toward the lows set in early 2008. In our opinion, we are seeing a replay of the 2004-2007 action and for very much the same reasons.  The immense levels of stimulation during the past year may indeed be providing some level of stimulation and the Dow is likely reacting to such considerations.  However, at the same time, many economists believe that the ratcheting up of deficits, money creation and debt are weakening the financial structure of America over the long term, an, as a result, holdings in the dollar are being reduced. As if to emphasize the state of America's financial underpinnings, we cannot help but note that over the past week, the level of U.S. government debt just soared to within a smidgen of twelve trillion dollars, far exceeding any previous peak area and it is difficult to foresee even the remote chance of a balanced budget leading to a reduction in debt levels at any time in the next several years - or even decades. Accordingly, we retain our pro-gold status and suggest, after proper consultation with registered investment professionals, that new commitments in mining shares and the yellow metal itself be seriously considered. Speaking of mining shares, the widely-followed XAU Index has risen sharply over the past two weeks and has now reached the highest level in over one year. ........................... As long-time readers know, I have a particular affinity toward the British press for several reasons.  First, the standard of writing is consistently high, in regrettable contrast to much of what we find in America and Canada.  Second, they are not afraid to stake out politically unpopular positions.  With that in mind, I took note of two stories which appeared this morning in the "Times of London." Regarding the tragic massacre at Fort Hood, after reviewing the litany of radical pro-Muslim writings and anti-American sentiments openly expressed by the alleged assassin, Major Nidal Hasan, that publication wondered why American security personnel did not take earlier actions to restrict the Major.  They paid particular attention to Nidal's presentation during a 2007-08 master's program at a military college during which he "...justified suicide bombing and told classmates that Islamic law trumped the U.S. Constitution."  The article points out that several students complained to the faculty about Nidal's anti-American views, but, presumably, nothing was done. The second article dealt with President Obama.  Few countries outside the USA celebrated Obama's victory as intensely as Britain, but one year later the Times ran a story under the banner headline, "One year on, and Obama's to-do list still leaves much to be done."  Inside the article they question his effectiveness and note, "...He has frustrated his progressive base with his timid use of Democratic majorities in Congress and enraged the paranoid hard-right...He has played more golf in nine months than his predecessor did in eight year..."  It is refreshing to see an important media publication which is not obsessed with 'political correctness'.  However, what concerns us, and constitutes a factor we believe which adds to the case for gold, is that the American media, for the most part, is obsessed with such 'correctness', and that will make it ever-more difficult to sell any program of fiscal sanity and restraint to the all-important voting public in that important nation. All major trends noted above are continuing as of 9:45 AMP PST.  Markets in Canada and the USA continue to rise sharply with the Dow ahead by about 150 while Canada's TSX Index is relatively stronger, up by about 225.  Gold is trading near $1,106 and silver has advanced by over 30 cents to near $17.65 per ounce.  Crude oil is also on the rise, up by over $2.50 to just above $80.00 per barrel and both major mining share indexes have gained about 5 percent.  Base metals are modestly higher on balance while the U.S. Dollar continues to trade lower on currency markets. (All Quotes US$ unless otherwise indicated.) Next "Melman Minute" planned for Thursday, November 12, 2009.  (We will be closed in honor of Canada's Remembrance Day and Veteran's Day in the USA.) ◄  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.