A Melman Minute By: Leonard Melman MELMAN MINUTE - August 25, 2010 - - - - - We are very impressed - in a positive manner - by gold's actions during the past two trading days.  Please note the yellow metal's performance in this thirty-minute, detailed trading chart. At approximately 9:00 AM CDT yesterday, gold was hit by sharp selling which drove it down to $1,211, $20 below its earlier peak at $1,231.  Normally, this type of short-term selling is followed by a sideways move while the market chooses a new direction.  However, yesterday morning, gold immediately turned higher and within 90 minutes had soared to $1,235 - a gain of $24.  Gold subsequently traded sideways the remainder of yesterday and this morning has moved upward once again, briefly exceeding the $1,240 level - barely $20 from its historic high. We particularly note the huge increase in volume which marked the sudden rally.  According to charting textbooks such as McGee and Edwards' "Technical Analysis of Stock Trends", significant moves in either direction tend to be confirmed when volume increases in the direction of the move. Frankly, we at TMR believe that if we were trading gold from the "short" side, meaning holding positions which profit when gold falls, we would consult with our professional trading advisor regarding the wisdom of maintaining such positions.  (This suggestion has nothing to do with professional production 'hedging' which is an entirely different matter.) Another technical concept which appears to be noteworthy in this time frame involves important "round numbers" which tend to be points of either resistance or support.  One such number is 10,000 as it relates to the Dow Jones Industrial Average. Please note that during the past six months there have been no less than four declines under the 10,000 mark, followed by four rallies above that line, not including today's activity when the DJIA dropped below the 10,000 level early this morning.  In our experience, the longer a 'battle' goes on above and below a round number between competing forces, as it were, the more decisive the subsequent breakout. What makes the present situation regarding both gold and the Dow Industrials even more compelling is the sudden downward turn in the financial news background.  In our opinion, this spate of negative data increases the likelihood of more aggressive actions by the Fed and other central banks, actions we believe over time will lead to currency debasement and, as a result, much higher gold prices over time. As we have noted previously, we scan the United Kingdom newspapers on a regular basis because of the observation that what happens in the UK frequently precedes similar events in America and other highly industrialized nations.  With that in mind, information in this morning's U.K. "Daily Mail" regarding retirement is worthy of note. First, they carried an article entitled "10% of staff fear they will have to work till they die."  That story detailed how, "One in ten people fear they will be forced to work till they die, research revealed yesterday.  It highlights the nightmare facing millions who will simply not be able to quit their jobs."  The research report by Barings Asset Management actually concluded, "...retirement could become a thing of the past...The ability to retire is now uncertain." The previous Labor government enacted a plan set to go into effect in 2012 which would call on employers to contribute three percent of a worker's salary into a pension plan, but many companies are struggling just to keep their doors open and stated that if such a plan goes into effect, they will simply lower workers' salaries. To compound the problem, many Brits assumed their government would pay them a sufficient monthly stipend which would allow for a retirement with at least a modicum of comfort, but the size of their National Pensions has failed to keep up with the cost of living. Second, at the heart of the matter is the reality that returns on savings have plunged over the past two years to the point where returns on funds left at banks and other financial institutions are approaching zero, both in Britain and on this side of the Atlantic.  The other Daily Mail story was headlined, "Just when you thought it couldn't get any worse, savers are pounded in rate cut frenzy."  That facts back up the headlines. Across Britain, where the government has dropped their short term rates to 0.5% (in America they have fallen to 0 - 0.25%) the newspaper noted that, "Two years ago, savers could earn 6.5% before tax by tying up their money for one year - worth 650 Pounds on each 10,000 Pounds invested", but now, "...A third of accounts pay 0.1% or less..." (Our emphasis) The article concludes with this observation, which we believe is also valid for the USA and Canada.  "Fears are also growing that thousands of savers who have seen the rates on normal High Street (banking establishment) accounts plunge are putting their nest-eggs at risk by gambling their money on so-called 'cautious' stock market investments that are actually high risk."  Given the securities markets plunges of the past two weeks, there is genuine validity to that warning. Are things going to improve dramatically in the near future?  In our opinion, that does not appear likely at all.  Please consider the following data which is just emerging regarding the world's largest economy, that of America. * - Orders for Capital Goods in America declined by a whopping 8,0% in July as businesses are spending less, not more.  Even worse, orders in the "Machines and Computers" category dropped by a full 15%, the greatest one-month drop on record. * - U.S. Home Sales plummeted in July by the greatest one-month drop in fifteen years, falling by 27.2% from June to July and declining to an annualized rate of only 3.83 million, the lowest number on record for that data series. * - Commercial property owners are defaulting on their real estate debt in growing numbers.  As the WSJ reported, "Companies such as Macerich Co., Vornado Realty Trust and Simon Property Group have recently stopped making payments to put pressure on lenders to restructure debt.  In many cases, they have walked away, sending keys to properties whose values had fallen far below the mortgage amounts", similar action to last year's residential real estate markets. Financial markets fell sharply this morning in response to such news, but some buying has returned and by 9:00 AM PDT both the Dow Industrials and Canada's TSX Index were both close to unchanged.  Precious metals continued higher with gold just above $1,240 and silver showing particular strength, up by more than $1.00 from yesterday's intraday low of $17.75.  Mining share indexes are up by about 1.5% but base metals are continuing their recent declines with nickel and lead coming under particularly heavy selling.  Crude oil and the U.S. Dollar are little changed while long-term interest rates are headed even lower. - - - - - All quotes US$ unless otherwise noted. Next Melman Minute scheduled for Friday, August 27, 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.