Resource World Magazine

D E C E M B E R / J A N U A R Y 2 0 1 7 www.resourceworld.com 23 Speculations by leonard Melman T wo clouds of uncertainty dominate our thoughts relating to the world of precious metals mining as we look forward into 2017 and beyond. First, what are the true states of major economies both in North America and the rest of the world and, second, what will be the likely impact on the metals of the surprise election of Donald Trump as America`s next president? In point of fact, there are serious ques- tions regarding the status of economic growth in many nations and doubts are occurring despite the greatest barrage of 'Keynesian' remedies ever undertaken. Interest rates have been slashed to the bone and below. Governments – particularly in Europe and America – have engaged in orgies of supposedly stimulative deficit spending and central banks have been buy- ing government debt in historically huge increments; however, all these so-called rem- edies don't appear to have been effective. In Canada, a recent study by The Globe Mail concluded that, "...after eight years of crisis-level rates, the (Canadian) economy is barely staying afloat." They also struck this negative tone about the whole economic thesis by noting those ultra-low rates and other stimulative measures, "…were sup- posed to accelerate growth and inflation but have delivered little of either…" Recent Canadian economic forecasts from both the International Monetary Fund and the Organization for Economic Cooperation and Development show steadily diminish- ing expectations for future growth. Starting in early 2014, their forecasts for growth rates have declined from 2.8% in early 2014 to just above 1% at present. As economic prospects have declined, many Canadians have turned to increasing levels of borrowing as a means of maintain- ing their standards of living. As a result, we learn that, "…Canada's ratio of house- hold debt to disposable income – the key gauge of debt burden – hit a record 168% in the Second Quarter 2016…The Bank of Canada has repeatedly expressed con- cern about the potential risk this poses to Canada's financial and economic stability." Economic data also suggests a lack of vigorous growth south of the border as well, a fact which may have contributed to the surprise Trump victory. Data from early November shows that both Domestic and Imported auto sales are down by about 15% from year-earlier figures; Durable Goods Shipments and Factory Shipments are down 3% from year-earlier levels; and looking at future-indicating statistics, New Factory Orders, Factory Orders Backlog and Non-Durable Goods Orders are all below comparable data levels from late 2015. While some employment figures have improved over the past year, a look below the surface reveals disquieting informa- tion. During the past twelve months, the number of lower-paying 'Service' jobs has soared by 2,161,000 while the higher-pay- ing 'Goods Producing Payrolls' category has stood virtually still, increasing by only 34,000 – or a rate of 0.17%. What I find astonishing is that this level of negativity is occurring when the US government is taking on enormous levels of new debt – which 'should' be stimulat- ing new economic activity – as illustrated by the fact that over the past year, the size of the US national debt has grown by an astonishing US $1.236 trillion! Other information from around the world suggests equally negative data. Europe's overall unemployment rate remains near 10% or higher while youth unemployment is holding near 20%. Germany's mighty Deutsche Bank is facing genuine crises while their second-largest bank, Commerzbank, is planning to shed 10,000 jobs. England is still suffering through high levels of uncertainty follow- ing last summer's 'Brexit' vote and Italy, Portugal, Spain and Greece also have bank- ing sectors facing huge difficulties. One of our strongest principles in pre- cious metals market analysis is the concept that the metals perform best when uncer- tainty abounds and the present time frame appears to be one of those times. After all, if ultra-low rates are failing to move economies higher, what is the alternative? Raising rates would directly jeopardize the housing and auto finance industries as well as the ability of governments to pay interest on their mountainous debts. The fact is, central bankers themselves do not seem to have clear plans for the future and that would suggest to us that 2017 could turn out to be a banner year for gold and silver. This leads me to wonder what actions and policies Donald Trump might adopt to accomplish his 4% GDP growth goal. While I generally like his plan to reduce corporate profit tax rates from 35% to 15%, how then will he finance his dramatic increases for infrastructure and military spending while maintaining all social welfare programs and creating his new 'family assistance' bureaucracy? With all of this in mind, I will stay with my sense that coming uncertainties will endow the year 2017 with the potential to see dramatic improvement in precious met- als quotes. 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 relating to the resource sector. Mr. Melman lives in Nanoose Bay, British Columbia, Canada and can be reached at lmelman@shaw.ca looking at 2017 – uncertainty could drive gold higher

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