Resource World Magazine

20 www.resourceworld.com d e c e m b e r / j a n u a r y 2 0 1 6 s p e c u l a t i o n s L e o n a r d M e l m a n A fter reaching a historic peak near $1,935 per ounce in summer 2011, gold has declined by over $800 per ounce to stand just under $1,100 per ounce in mid-November 2015. (All prices quoted in US$) One might normally think that with an overall decline of that magnitude, the world of gold (and the other precious metals) would have presented a virtually relent- less scene of despair and dismay – but that has not at all been the case. In fact, during the long decline now lasting more than 50 months, there have been no less than nine rallies in gold of more than $100 each! Since many investors in mining shares closely watch the price of the precious metals (PMs), it should come as no surprise that each one of these rallies was accom- panied by surges in the prices of mining share indexes, as exemplified by the five- year chart of the Philadelphia Gold/Silver Index (XAU). Unfortunately, all those rallies turned out to be false rallies and over the past four years the index has plunged overall from well above 220 points to below 50 points at present. Several questions suggest them- selves including: "Why have investors been willing to take new positions on so many occasions when previous attempts at 'catching bottoms' have failed?" and "when are the factors which have been holding gold and silver within a pro- nounced downtrend since summer 2011 going to fade away – for good?" I believe part of the answer lies inside one of Shakespeare's most famous quotes from Henry IV, Part 2 which reads: "Thy wish was father, Harry, to that thought." A modern commentary on Shakespeare interprets that line to mean, "You thought that because you wished it to be true." Many participants in precious metals mining including investors, prospectors, geologists, writers, publicity people as well as mining management, economists and engineers – and many others – enjoy both economic and psychological high times when gold and silver rally. Investments rise in value, salaries and bonuses within the mining sector increase and there is true satisfaction in watching the chosen alternatives to unbacked fiat currencies – namely gold and silver – soar. It appears likely, therefore, that many within the PM world are ready and willing to believe that any strong upturn in the price of the pre- cious metals may indeed be the return to a renewed and powerful precious metals bull market. There is also the fact that according to historic standards of reasoning, the pre- cious metals should be exploding upwards in value. We have seen the official national debt of the US rise from less than $12 tril- lion in 2009 to a present figure in excess of $18.5 trillion. We saw unprecedented budgetary deficits in America averag- ing $1 trillion per year for several years beginning in 2009 and we saw money cre- ation by many central banks, specifically including the American Federal Reserve Bank, on a previously unimaginable scale. It should also be noted that it is not only financial data but also details of conflict and political instability that have been instrumental in past bull markets, but numerous recent stories of Middle East battles; human massacres; political upheavals and almost uncountable human refugees seeking new homes, have failed to stimulate any lasting positive responses from the PMs. Historically, financial and social data such as these items should have sent infla- tion soaring and added to gold and silver's haven of safety reputation and, presum- ably, many in the precious metals world believed they would do so again – but those expectations have not been achieved. In fact, two measurements of financial or social crises, interest rates and visible inflation rates, the mighty "twin towers" of previous historic precious metals bull markets, have headed in precisely the opposite directions and now both stand near "zero." The great question for the precious met- als world apparently becomes whether we will return to historic norms where these considerations truly drive PM prices higher and, if so, when? My own best guess is we will see a new PM bull market but it may lie some time ahead. In order to garner widespread pub- lic participation in the metals I believe we need two items; rising visible price infla- tion and demonstrable weakness in the US dollar. Unfortunately for the PMs, the present worldwide commodity slump con- tinues and talk of increases in US interest rates likely will add to Greenback strength. It seems, then, that a bit more patience might be called for among precious metals advocates and investors. n This material is taken from sources believed to be reliable and is provided for information only. Any investment decision should be made only after prior consultation with investment professionals. Leonard Melman is a financial and political writer who focuses on issues relat- ing to the resource sector. Mr. Melman lives in Nanoose Bay, British Columbia, Canada and can be reached at lmelman@shaw.ca False Rallies The greaT quesTion for The precious meTals world apparenTly becomes wheTher we will reTurn To hisToric norms where These consideraTions Truly drive pm prices higher and, if so, when?

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