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 26, 2010 - - - - - HISTORIC PERSPECTIVE Periodically we spend a great deal of time pouring over historic charts and during our most recent efforts a rather remarkable coincidence sort of 'popped up', and it could have some significance regarding our prognostications about gold's future. In late 1929, the Dow Jones Industrial Average peaked just below the 400 level and, as everyone knows, a series of cataclysmic declines set in, followed by a period of general stagnation and it was not until 1954, twenty-five years later, following a period of depression, wars, economic reorganization and enormous political changes that the average finally reached a new peak.  Over the 50+ years since 1954 when it achieved that new high, the Dow Industrials soared from about 390 to its record peak of 14,200 - a multiple of thirty-six times! Gold had a comparable period of retreat.  Following the previous historic peak of 850 attained in January, 1980, the world of gold endured profoundly negative conditions (for gold!) including a reduction in rates of inflation; relative peace; substantial bullishness in conventional securities markets, general prosperity and a high degree of public confidence in the political system.  Therefore, as a contra-indicator which normally prospers in difficult times, gold fell into a prolonged bear market and that historic January, 1980 high was not exceeded until very late in 2007 - twenty-seven years later! We cannot help but note that the quarter-century bearish performance in securities markets ended when society took on a much more positive note, one which lasted for more than a half-century before recent reversals appear to have taken hold.  In the same manner, but coming from the opposite direction, all of the negative (for gold!) events which coincided to create the quarter-century bear market in the yellow metal appear to be reversing themselves.  Inflation is low, but changes are on the horizon.  Peace is under siege in Iraq, Iran, Israel and now, conflict appears more likely between North and South Korea.  Bullishness in securities markets has been weakened dramatically.  The world has been hit by banking, real estate, currency and unemployment problems, all at one and the same time.  Confidence in the political establishment has been fading rapidly. And so, we must ask this question.  Will the breakout in late 2007 to new highs represent the onset of a new era of prosperity for gold - as the breakout of 1954 represented a half-century of growth (albeit unsteady at times) for the Dow Industrials?  Time will tell, of course, but there is sufficient similarity in the general concept to file this information away for future reference.  By the way, if gold were to repeat the Dow's performance by growing at some time in the future to a multiple of 36 times its breakout level, that would represent an ultimate peak of 36 times 850, or $30,600 per ounce! Of course, should that happen, one can only wonder what kind of world we would be living in! Other people are also speculating on gold's future as well and financial columnist Brett Arends just wrote an article which asks the question, "Is Gold the Next Bubble?"  In his piece he quotes Harvard Professor Niall Ferguson as declaring, "The time to buy gold was 1999, not 2010."  But Arends is not so sure as he points out that while gold's price has indeed risen from under $300 to over $1200, it started from a very low level and may have much farther to go on the upside. In fact, he speculates that gold has yet to see a 'blow-off' phase of anything like the frenzy which drove both home-building stocks of 2007 and hi-tech stocks of 1998-2000 to such ridiculous (in hindsight!) levels during their final, blow-off phases.  In fact, he notes that gold might be in a similar situation akin to, "...just before those markets went into orbit."  He also points to the lack of general consensus that gold is headed higher and specifically to the number of Wall Street analysts who still hold negative views on major mines such as Barrick and Newmont and also points to the lack of any general 'buzz' about gold, such as the time when taxi drivers and barbers were willingly handing out tips regarding which hi-tech or home-building shares should be bought. His conclusion is most interesting, particularly in light of the long-term coincidence noted above.  "...The fact that we now seem to live in Bubblonia - the land of perpetual bubbles - would suggest there is a current opening for the role.  And, in many ways, gold may be well cast." We believe he may just be right. ................ Last week we pointed out that many nations are at least making public statements about the need for austerity and the desirability of reigning in the scope and size of government. That statement brings us to a review of Queen Elizabeth's address to the opening of Parliament on May 25.  Perhaps the message was written by the new Conservative and Liberal Democrats or perhaps the Queen herself has seen the necessity of economic caution, but, for whatever reason, there was nothing in common with her address of yesterday to her address at the opening of the previous parliament last November.  At that earlier time, within seven minutes, the Queen has proposed a list of government benefits and interventions which was remarkable, to say the least. This time around, her tone was entirely different.  She began her speech by noting, "The first priority is to reduce the deficit and restore economic growth."  She also addressed the rampant growth of immigrant expenditures by declaring, "My government will limit he number of non-European Economic Union immigrants entering the United Kingdom..."  She even went so far as to declare, "The cost of bureaucracy and the number of public bodies will be reduced."  Clearly, someone informed her that the public had grown disenchanted with government bloat and debt as she stated, "...My government will propose Parliamentary and political reform to restore trust in democratic institutions and rebalance the relationship between the citizen and the state." All of this is pretty heady stuff, but the skeptic in me cannot help but note that in November, 2009, when the Laborites controlled Parliament, she made a speech in the opposite direction, one which promised a list of government benefits and actions which was utterly astonishing and now, just six months later, she has totally abandoned the pledges made so willingly only at that time.  It makes one wonder just how dedicated she is to these new proposals. We shall see, and the gold market will be watching. Gold apparently likes what it is seeing so far this morning because at 10:00 AM PDT it has moving higher, having reached a peak near $1,217, just $32 below its record high.  Silver and platinum are both modestly higher while base metals have moved ahead by about two percent on average, as have mining share indexes as well.  Crude Oil is up by over $2.00 per barrel, the U.S. Dollar is slightly weaker and securities markets in Canada and the USA are advancing with the TSX Index ahead by about 130 points and the Dow Industrials up by nearly 75. - - - - - All quotes US$ unless otherwise indicated. Next Melman Minute scheduled for Friday, May 28, 2010.      ◄  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.