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!"   December 2, 2009   Gold is doing it again this morning; that is moving to yet another historic record high and the intraday peak for the yellow metal now stands at just under $1,218 per ounce.  Of course, the great question is whether the rapid move upward following last month's breakout above the previous high level near $1,040 is just a 'bubble' about to burst, or whether it is a strong signal that gold has moved into a powerful, new upward phase within a dynamic and long-lasting golden bull. So, let's look at some of the background evidence in an effort to identify which outcome, we believe will be the more likely. The power of this new move is clearly evident on gold's long-term chart.  In fact, we can find only two instances of a move of this absolute magnitude in as short a time span, namely that of December 1979 and January 1980 which carried gold from near $400 per ounce to over $800; and the late 2007 through early 2008 raly which saw gold move from about $670 to just under $1,040. There is a staggering difference between the two prior moves.  When gold collapsed from its high of January 1980, that clearly marked the end of the bull market which began in the summer of 1976.  Although gold did rally back during the rest of 1980, it never threatened the initial peak and then fell backward into two decades of consistently anemic market action. However, when gold fell back from its March, 2008 high, the descent was slower and gold built a new base within an ongoing bull which eventually broke out to new record high levels.  It is our belief that the achievement of new record highs confirms the continued existence of an ongoing golden bull which began in 2001.  We would also state, along with other analysts, that gold's ultimate high before this bull phase is over could reach levels which today might sound unattainable, to phrase things politely. This chart relates to the Japanese Nikkei 225 Index, the Japanese equivalent of America's Dow Jones Industrial Average.  That nation's securities markets had been advancing, almost without interruption, since the early 1950s and finally reached a climactic peak in early 1990 - almost exactly 20 years ago.  Since that time, although it has enjoyed periodic rallies, the major trend has been down and, despite two decades of the most liberal governmental monetary policies imaginable, the Nikkei 225 Index has lost a full eighty percent of its value over that period of time. It occurs to us that America of today is following the Japanese path including running massive deficits, driving interest rates to near zero, enacting massive social welfare programs and moving to direct support of favored industries.  However, it can be seen clearly that such policies have not resolved Japan's financial problems and, in fact, they have been worsening over time as Japan has accumulated the greatest debt-to-GDP ratio of any major industrialized nation.  Unfortunately, in our opinion, it appears the Japanese monetary authorities have learned little to nothing from this sad market performance, for just this morning, the newly-elected government announced a program of maximum stimulation in order to avoid looming deflation.  According to a statement from the Bank of Japan, included among their policies will be a new lending program to provide 10 trillion yen (about $115 billion) in new stimulation to avoid the possibility of the economy slipping back into recession and their statement noted, "...The bank believes that the decision made today, together with the government's efforts, will firmly support Japan's economic developments toward recovery."  They also decided to hold their key lending policy rate at 0.1%, near where it has been for several years. We believe this announcement amounts to nothing other than a continuation of policies which have been adopted for much of the past 20 years and which have not worked to restore Japan to its once-mighty position among the world's economies.  This recent action brings to mind one of the world's most commonly-accepted sayings, namely, "One definition of insanity is to do the same thing over and over and yet expect different results." There is another saying, this one attributed to Santayana, which goes, "...Those who do not learn from history are doomed to repeat it."  Well, when one notes the path taken by America's economic authorities and compares it to the two-decade Japanese record, it becomes apparent that America has not learned any lessons from the Japanese failures - and that is why we still believe the rally from 6,800 in the Dow Industrials, impressive though it may appear to be, remains a rally within an ongoing bear market, with new lows ahead. A second look at the Nikkei 225 chart shows that is precisely what happened in the years following the Japanese peak, namely sharp declines followed by impressive-looking rallies which, however, were soon followed by new waves of selling. It appears that negative employment news will be forthcoming when the American Department of Labor releases it jobs report early Friday morning.  The private firm, ADP, just reported their estimates for November and they show the loss of yet another 169,000 jobs.  When government jobs are taken into consideration, they forecast a total of 180,000 losses.  Should they be correct, it is most likely that the unemployment rate will continue to rise from its present level of 10.2% There is even more ominous news to consider.  A Wall Street Journal article noted this morning that, "Highway construction companies around the country, having completed the mostly small projects paid for by the federal economic-stimulus package, are starting to see their business run aground, an ominous sign for the nation's weak employment picture." The article quoted Tim Word, vice-president of Dean Word Co., a heavy-construction company in New Braunfels, Texas, who said his income, "...is now coming mostly from projects that are winding up.  He said in normal times he has about $100 million of signed contracts in hand, but that number has fallen to $30 million and the pipeline is empty."  (our emphases) We interpret such information as being a virtual guarantee that government stimulus in American is going to continue for some time into the future, deficits and debt be damned.  And now, added to the picture, is the reality that the U.S. government must now finance the cost of adding 30,000 additional troops which are to be sent to Afghanistan, thanks to President Obama's West Point address last night. As of 10:00 AM this morning, financial markets are mixed with the Dow Industrials down by about 40 points while Canada's TSX Index is holding on to a small gain of about 25 points.  Gold is off from its high and is now trading at about $1,209 while silver is moderately higher and platinum has just broken above the $1,500 level.  Base metals are a bit stronger on balance with lead and zinc putting in the best relative performances over the past few weeks, but nickel remains something of a laggard.  Mining shares are up slightly, crude oil has fallen back to under $77 per barrel and the U.S. Dollar Index is modestly higher. - - - - - All quotes US Dollars unless otherwise indicated. Next Melman Minute scheduled for Friday, December 4, 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.