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 9, 2009   The world's attention is now focused squarely on the Danish city of Copenhagen and I cannot help but wonder what would its most famous historic citizen, Hans Christian Andersen, think of the goings-on of late?  When the conduct of many of the world's leading environmental citizens is examined, we wouldn't doubt at all that he would find a "gold mine" of stories for his children's tales.  Why would we make such a statement?  The answer is simply that at a convention dedicated to the salvation of the world through efficient use of energy combined with environmental cleanliness, thousands of these paragons of virtue are comporting themselves in as wasteful and glutinous a manner as can be conceived.  Private jets have descended on Copenhagen's airport, food delicacies are being flown in from distant regions and luxury hotels are consuming massive quantities of energy to provide delegates with every imaginable service.  But this hypocrisy aside, it is the serious business of the Copenhagen gathering that concerns us the most, as we believe the potential harm to the world's economic structure which could result from a possible barrage of well-meant (we hope!) regulations proposed at this conference could be long-lasting and ultimately severe.  We also fear that many of the rules to be proposed at this gathering could negatively impact the mining industry in particular.  It is our understanding that the United States is about to make a commitment to reduce their carbon-dioxide emissions by 85% as of 2050.  Of course, no one has the foggiest idea of how this is to be accomplished in the face of an expected American population gain of one hundred million people by that time, but presumably it makes for good politics to make such promises.  The difficulties come when politicians and regulators then create bodies of laws and rules designed to accomplish such goals - and that is where we relate the conference and its possible outcome to the world of precious metals mining. If all that happens, it is our belief that the economy may easily get tied up in regulatory knots, government expenditures will go up, tax revenues will decline, deficits will widen and, as a result, monetary conditions affecting the U.S. Dollar will deteriorate significantly to the benefit of the monetary precious metals.  One area of focus will be the use of fossil fuels, most particularly crude oil and coal, since they are regarded as among the most polluting.  Somehow, the world's leaders are promising to reduce the consumption of such fuels by an astonishing amount.  We simply cannot see that happening.  Here is why. First, the population of the world is increasing, not decreasing.  According to the latest estimates from the U.S. Census Bureau, the world's population is expected to increase from 2000's figure of 6.086 billion to just short of eight billion by 2025, a gain of almost two billion persons in just one generation. Next, even if economic standards in the poverty-ridden nations stood still, such growth would still imply an increasing use of crude and coal, since they are the prime sources of energy for transportation and electricity.  However, given the rate of economic growth in such nations as China and India in terms of auto sales, appliance manufacturing and urbanization, along with the absence of any other short-term solution for energy requirements other than coal generation, demand for those consumables, in our view, is likely to increase, not diminish as the environmental community desires so fervently. And so, we await the opening of this gathering and we are certain that in the coming two weeks, announcement of considerable importance to the international financial community will be forthcoming.  We will report on these as events occur. In the meantime, we noted Monday that the price of crude oil has been declining of late and that is the case once again this morning as Crude's price has now declined to under $71.00 per barrel, the lowest quote since early October and the short term trend for crude is clearly toward lower prices. The uptrend since mid-2008 appears to be continuing, but the chart could be 'rolling over' into a new down-leg.  Should that happen; we may very well see a 'testing' of the 2008 lows near $34 per barrel. The fundamentals for oil appear to point toward relative balance.  According to the latest projections from the International Energy Agency (IEA), demand for 2010 is expected to be 86.2 million barrels per day (mbpd) while supply is forecast at just below 86 mbpd - or close to in balance.  Therefore, unless some major supply or demand factor changes dramatically, we would expect only minor price changes during the coming year. We cannot help but wonder if the latest selling in crude is the market's way of saying that the anticipated international economic recovery may not take place at all, or be one lacking in conviction, and, therefore, demand would fall while supply remained steady. Some members of the international community are becoming negative in their price outlook for the future, including the World Bank which now calls for crude at $63 during 2010; private oil forecasting firm OSK Research which lowered its estimate to $62 per barrel; Britain's Capital Economics now calling for $50 per barrel in 2010; and a poll by "worldoils" website which found the greatest number of respondents forecasting "between $65 and $75" for next year. Our own view is that crude prices will fall moderately over the next year as the presumed economic recovery fails to attain the strength that many predict in the coming year.  However, we do expect prices to rise over the long term due to powerful demographic factors. Markets this morning had been relatively quiet until recently, but as of 10:00 AM PST, strong selling has hit the resource world with gold now down to near $1,120, a loss of about $15 on the session, and silver is off by about 30 cents to near $17.50.  Base metals are also headed lower with copper off an additional five cents to about $3.10 per pound.  However, it is crude oil which is taking the sharpest hit with the price now down to just above $70 per barrel.  Lower metals and crude prices have driven the TSX into negative territory, now down by about 70 points, while the Dow Industrials are close to unchanged.  The U.S. Dollar is down slightly in currency trading while long-term interest rates are slightly higher. - - - - - All quotes US$ unless otherwise noted. Next Melman Minute scheduled for Friday, December 11, 2009       ◄  Previous Minute                                                                                                        Next Minute  ►
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