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. Since the work has been expanded to include potential solutions to the growing list of seemingly insoluble dilemmas, the working title of the book has been revised to 'REVERSING THE WAY IN!"   MELMAN MINUTE - May 12, 2010 - - - - - Strike up the band!  Get out the bright red crayon and circle the date, May 11, 2010 on all your calendars, for on that day, the price of gold soared to yet another all-time high - disregarding the ravages of long-term inflation, of course!  However you want to put things, we believe gold is in a powerful rally that, in our opinion, has a lot further to go.  Two charts will illustrate the point, but before describing our beliefs regarding the underlying concepts of the situation, we would remind all readers of our caution that no investments should be made without prior consultation with a registered investment professional. The three-year chart of gold shows us a pair of text-book rallies in the yellow metals.  In the first case, please observe the pattern formed from March 2008 when gold hit its previous record high near $1,030 through October 2008 when it hit an intermediate low of $680 to October 2009 when it once again broke out to a new record high, eventually peaking at just over $1,225 in early December 2009.  The symmetry of that move was remarkable, as was the clear line of resistance which formed between $1,000 and $1,030. Next, please focus on the period December 2009 through the present time.  In shape, it is almost a perfect replica of the previous example, but with a much shorter time frame.  In just six months, gold had a decline, rallied and broke through to a new high - but in an accelerated manner.  It is also noteworthy that the entire period from the low of October 2008 to the present has taken place along a rising trendline which remains unbroken. Now, please take a look at the ten-year gold chart and observe how the rallies described above seem to be consistent with an overall pattern of a gradually accelerating golden bull market which we believe has been existence since late 2001.  There is also a specific pattern which we believe is well worth noting and that is the recent 'cyclicality' - or almost perfect regularity of the intervals between market peaks. Clear intermediate peaks appear in early 2006, early 2008 and now in early 2010, in each case establishing a two-year interval.  If that remains the case, it would appear that another and perhaps much higher peak awaits us in the future near spring 2012. Altogether, we believe the technical situation is very bullish for the long term prospects for gold. However, we believe that not only the technical outlook for gold appears to be positive, but the fundamental background also is providing 'gold bugs' with supporting information.  During the past few years we have seen monumental levels of currency creation; huge increases in debt levels throughout the social, political and business structures in many nations; an astonishing number of countries whose financial structure has deteriorated rapidly; rioting and death when national corrective measures are suggested; with each combined to foster a growing sense among the nations of the world that all is not only not well, but we may, in fact, be on the road to irresolvable problems in years to come. And so, gold has risen to a new record high, despite many predictions from experts that a major decline should be taking place, despite all the various measures by the world's political and economic leadership to contain gold's price and despite the reality that the majority of the world's citizens still regard the paper currencies they hold in their hands as 'real' money. From a trader's point of view, such skepticism is positive news, because it indicates that there are, quite literally, billions of people around this globe who do not yet espouse the merits of gold and, therefore, could become converts in the future, meaning that abundant quantities of wealth could yet be funneled into the relatively narrow portals of the international gold market - driving the price ever-higher. We are well aware that our expressing such optimism regarding gold, along with other writers and analysts who believe the same to be true, could result in contrarians saying this is evidence of a 'top', but we would point out that those who believe deeply in gold are but the tiniest minority compared to the multitudes who have put their faith in conventional currencies, conventional markets, conventional politicians and conventional Keynesian economic policies. It might sound over-dramatic, and we would emphasize these thoughts reflect our own personal beliefs, but it is our opinion that should those 'conventional' beliefs ever prove to be false, the potential transfer of funds from the 'conventional' world into the world of monetary precious metals could be, quite literally, breathtaking. We shall watch events in the world of monetary precious metals closely indeed and report as appropriate. - - - - - Other major story lines continue to garner their share of news and three in particular are north noting. Given the amount of bad press that governmental profligacy has received of late, it comes as no surprise that several nations are now pronouncing themselves, 'cured', that they will adhere to stringent austerity measures and bring their financial houses back into order.  A Reuters story out of Madrid and Brussels tells us, "Spain became the latest euro zone country to announce sweeping austerity measures on Wednesday...Prime Minister Zapatero said Madrid would slash civil service pay by 5 percent this year; freeze it in 2011; cut investment spending and pensions; and axe 13,000 public sector jobs..."  Britain joined in the austerity pledging as well when incoming Conservative Prime Minister Cameron and his party declared one of their first objectives was "significantly accelerated deficit reduction".  Our own feeling is that these nations and others are beginning to talk a good game, sort of like a gambler or drug addict whose behavior has caused harm and then swearing to never do it again, but we will remain skeptical until real, potent and sustained actions are taken and adhered to, regardless of the public consequences. In the other two story lines, fallout continues to accumulate from the massive oil leak in the Gulf of Mexico, thereby threatening new rounds of regulatory interference with oil exploration, while this morning brought news that the United States Balance of Trade is continuing to expand, having now reach a rate of about one-half trillion dollars per year in March. As of 9:45 AM PDT, gold continues to show strong gains, trading near its intraday (and record) high of $1,248 and silver, platinum and palladium are also showing strong gains.  Base metals have been quiet so far while mining share indexes are showing only modest gains of about 1.5%.  Currency and interest rate markets are also quiet and crude oil continues to show weakness, dropping to just above $75.50 per barrel.  Both the Dow Industrials and Canada's TSX Index are trading higher, up by about 100 and 110 points respectively. - - - - - All quotes US$ unless otherwise noted. Next "Melman Minute" scheduled for Friday, May 14, 2010.  Given the strength in gold, we plan to take a look at the silver market, which is now rallying strongly as well.        ◄  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.