A Melman Minute By: Leonard Melman MELMAN MINUTE - September 3, 2010 - - - - - The U.S. Department of Labor announced August's job figures this morning and they have been interpreted as somewhat better than expected.  The "nonfarm payroll" figure expanded by 67,000 and they also re-calculated the net job creation numbers for June and July to the upside. Markets began to react immediately with securities indexes rising sharply, gold falling and long-term interest rates headed higher.  We note that an interesting correlation between stock market performance and higher long-term interest rates now appears to be taking place.  Please note the following two charts. Please note that the Dow Industrials traded within a narrow range bounded either side of 10,000 before breaking sharply higher during the past three days, rising to the 10,400 area. At the same time, the TYX index of interest rates on 30-year U.S. government bonds traded sideways for the same period as the Dow before rising sharply, also during the past three days.  Even the hourly patterns show the same general configuration. In our opinion, the explanation is relatively simple.  Financial markets have been rallying on perceived good economic news, but there is a recognition that economic expansion could also lead to rising inflation and, therefore, a strong likelihood of rising interest rates.  It will be most interesting to see if this correlation continues. Actually, this concept fits in with our long-term outlook for markets and the precious metals.  We have believed for some time that any rally in the world's general economies, specifically including the USA, will ultimately lead to rising inflationary pressures, higher interest rates, and higher monetary precious metals prices.  So far, we have seen nothing to cause us to change this general outlook. ................ A very interesting development regarding gold has just been reported out of Malaysia where economic writer James Hookway has filed a story from the city of  Kota Bharu in that country detailing how new gold and silver coins are being introduced into a small segment of the population.  The coins, named the golden "dinar" and the silver "dirhams" are being touted by some Islamic leaders as a means of finding a substitute for the U.S. dollar and other paper currencies. It is most interesting that some of the arguments being suggested in favor of the precious metals coins being presented by Umar Vadillo, one of the Muslims at the center of this action, sound similar in nature to arguments which have been presented by North American "hard money" advocates for some time.  These include: * - Oil and other minerals are finite resources and they should not be sold for payment in depreciable fiat currencies. * - Precious metals coinage is consistent with individual liberty. * - A piece of paper is nothing but a glorified IOU. * - Precious metals retain their purchasing power over time. To date, only a few coins have been minted and they have received only limited distribution - but the fact that they have received even this level of limited acceptance in a world dominated by fiat currencies is a most interesting development. ......... Anyone who has been involved in the world of precious metals for more than 30 years knows that for generations, South Africa was the dominant supplier of gold to the rest of the world.  In fact, South African mines were so productive that the prosperity of that nation compared to the rest of Africa was built, more than any other factor, on the their astonishingly rich mines.  And, while they are no longer the world's largest gold producer, they still are an important force in the world of gold mining. Therefore, it is of more than passing interest that the potential for civil unrest appears to be growing in South Africa, unrest which could eventually impact production at the remaining mines.  As we noted recently, some civil service unions have begun strike actions aimed at gathering huge wage increases from the government.  It appears the situation is deteriorating steadily. An article in this morning's Wall Street Journal bylined from Johannesburg details how the intent of the strike now includes protests against perceived government corruption and anger at the conduct of the government itself.  In a declaration of disgust at the high lifestyles of government ministers, the labor union "Cosatu" issued a statement which included the accusation that, "This is a case of the shepherd feeding himself forgetting about the lambs." Any civil unrest which could threaten gold mining supply coming out of South Africa is a matter of utmost importance - particularly if it threatens long-term production - in our gold supply/demand calculations. Markets have settled down from earlier gyrations and this has been particularly true of the precious metals markets which declined originally on the labor report, but have since bounded back sharply as of 9:45 AM PDT.  Gold fell swiftly to just under $1,240 early in the session but the yellow metal is now trading near $1,252 per ounce, close to unchanged for the day.  Silver's performance has been even stronger and at this moment, the white metals is barely under $20.00 per ounce, the highest level in many months.  Financial markets in America remain positive with the Dow Industrials ahead by over 80 points while Canada's TSX Index has recovered from early metals-based selling and has just moved to the 'plus' side. Both base metals and mining share indexes are also close to unchanged while crude oil is off by about $1.30 per barrel; the U.S. Dollar is slightly weaker in currency markets; and long-term interest rates remain higher on the day. - - - - - All quotes US$ unless otherwise noted. Next "Melman Minute" scheduled for Tuesday, September 7, 2010 due to the Labor Day holiday on Monday.   ◄  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.