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 18, 2009   Perhaps the most interesting role assigned to gold by the free market is to act as an unofficial "thermometer" of the effectiveness of government interventions in the economic marketplace.  Just as a thermometer for the human body indicates a high level of health when the temperature is normal and steady, but indicates trouble when that number starts rising rapidly, many analysts believe that gold functions in the same manner regarding the economy. When economic growth is steady and the public remains optimistic in their estimation of future prosperity and stability, gold's price frequently performs functions poorly with the two-decade period from 1981 through 2000 serving as an example.  However, when concerns regarding the future begin to grow, then gold usually reflects this change by rising - and matters begin to appear particularly serious when both the rate and magnitude of gold's rise begins to garner public attention. In our opinion, such is now the case.  Not only has gold just broken through another significant statistical barrier by trading above $1,150 per ounce this morning, but our momentum studies show that the rate of change in gold's price is beginning to escalate.  Although we are reluctant to include the chart on gold yet another time, it is essential to illustrate the point. Please note the "stair-step" appearance of this chart and the time intervals involved.  Gold broke free of the 900 area about July 10 and then rose decisively above the 950 zone the first week in September, or a period of about seven weeks.  The breakout above the 1000 level took place near October 5 - or about four weeks later with 1050 following in about three weeks, 1100 in just two weeks and now we have attained 1150 in just a matter of a few days. There are many who are looking at this latest strong rally as a "blow-off" prior to an important reversal, but we believe otherwise and the longer term chart for gold would appear to give credence to that opinion. As may be noted, this chart is not at all similar to what we saw in early 1980 when the chart turned decisively vertical.  Rather, we believe the long term chart on gold has more the appearance of a "Gathering Storm", still in the relatively early stages of a major, gradually accelerating, long term golden bull market move. There is also another feature about gold's price that is well worth noting and we are referring to the reality that gold is rallying against virtually every major currency on earth.   An easy proof for that statement exists in terms of the U.S. Dollar Index (DX).  While gold has soared from $1,050 to $1,150 U.S. Dollars over the past three weeks, the DX Index has remained virtually unchanged, indicating gold was moving upward against an average of all other important paper currencies. This factor shows up in terms of the Canadian Dollar as well.  With this morning's gold price of  about US$1,150 and a Canadian Dollar valued at near 95.25 cents U.S., the effective price for gold in Canadian Dollars has now exceeded C$1,200 per ounce - a number which is likely to produce more than a few smiles in executive offices within the Canadian gold mining world. .................... In the "there may be hope after all" category, we find two specific news reports that indicate perhaps the world, or at least a goodly portion of it, may indeed be waking up to reality. In the first case, arch socialist-demagogue Hugo Chavez of Venezuela has suddenly found the path to continuing or even enhanced political success has hit the roadblock of economic difficulties.  According to government figures, Venezuela's economy has gone into steep decline at just the same time the rest of the world is beginning to report improvements.  That country's economic output fell 4.5% in the Third Quarter 2009 after falling by 2.4% during the previous one. Boris Segura, senior economist for Latin America at Scotland's Royal Bank told the media, "This is much worse than expected and will send the government into panic mode."  In fact, Venezuela is facing a huge array of problems including rising inflation, a private sector reeling from high taxation and government confiscations, low (compared to last year) oil prices and a rising percentage of the population dependent upon government handouts. Should the Venezuelan economy fail to improve, Chavez' record of electoral triumphs success could easily come to a grinding halt - as would his influence on the South American political outlook. In the second case, The Wall Street Journal just reported the U.S. Senate is preparing to set aside any serious consideration of the mammoth climate control bill until spring 2010 at the earliest.  Apparently, political considerations relating to next year's elections are now becoming dominant.  As financial writer Ian Talley noted, "...Democrats looking ahead to the 2010 midterm elections are concerned about a backlash from voters in industrial and heartland states dependent on coal.  Republicans are portraying Democrats' 'cap and trade' proposals, which call for capping overall U.S. greenhouse-gas emissions and allowing companies to buy and trade permits to emit those gases, as a 'cap and tax' scheme..." By coincidence, at the same time reports are coming out of Copenhagen that the upcoming environmental conference will NOT result in a global, binding agreement to set caps on greenhouse gases.  Rather, it will be used to attempt to forge an agreement to set binding regulations at some time in the future, perhaps at another similar gathering set for summer 2010. One can only hope that the onrushing freight train of new and powerful environmental laws, both those within the United States and others binding on the rest of the world, may indeed have hit a few obstacles.  In our humble opinion, the last thing the productive world needs is yet another tidal wave of restrictive and crippling laws. Clearly, gold is once again the 'star' of markets this morning, reaching a peak of just above $1,153 before retreating to near $1,148 as of 9:40 AM PST.  Silver continues is recent rally and now is selling near $18.70 while the base metals and the platinum group metals (PGMs) are close to unchanged.  Mining share indexes have retreated from higher openings, crude oil is once again near the $80 per barrel level and financial markets in Canada and the USA are headed in opposite directions with Canada's TSX up by about 40 points while the Dow Industrials are off by a similar amount. (All quotes US$ unless otherwise noted.) Next "Melman Minute" scheduled for Friday, November 20, 2009. ◄  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.