There are very few concepts that scare investors as much as inflation, or to take things one step further, hyperinflation, and that’s why so many turn to metals as an investment in the first place. With a busy Cambridge House conference in Toronto now behind us, focusing on the bigger economic picture moving forward is a must for most, and it’s one of the reasons we’re so glad we had a chance to sit down with Leonard Melman of "The Melman Report" during the conference. He not only offered us some valuable insights into the metals market, but also into the economic changes in the system as a whole.
Melman’s presentation topic was “On the Road to Hyperinflation?” and it couldn’t have been timelier for most attending the conference. Any quick online search will tell you that investors and governments alike are seeing a rise in inflation, and it’s scaring most to no end. Melman contends that with the monetary debasement of the last three to four years, the stage is being set for potential hyperinflation down the road, an economic condition few of us are truly ready to deal with. It’s the work being done by governments right now to convince citizens that things are right back on the path to a rosy outlook in the future that serves as the proof to support that hypothesis. A look around the world only supports that idea. On a recent road trip in Spain, Melman encountered riots along the road where people were losing jobs. There are currently reports in Greece that civil unrest is just a short distance away. Even Ireland has topped world news with its horrible economic state, and the US is far from immune to these problems. In the last six months, the welfare rolls in Minnesota have grown so quickly, it’s been impossible for the state’s government to keep up. The entire idea that we’re headed toward prosperity, according to Melman, is utterly false.
“In real terms, most governments have already shot their wad. They have done all the things they can normally do by historic Keynesian interpretation, and they have very little room to grow. I think we’re literally, to use an expression, between a rock and a hard place,” said Melman.
With the potential for civil unrest, rapidly escalating inflation (which makes business difficult), and a possibility of a temporary cessation of the government’s ability to pay welfare in meaningful currency, the prospects are horrible, but they’re more than a remote possibility.
Fortunately, Melman did have some good news for investors. While the chances of a bleak future are out there, this is still the right time for both junior mining companies and metals investors alike for one major reason.
As of September 2010 gold has hit $1300 an ounce with silver sitting at $21 an ounce. The base metal prices are absolutely soaring. What all of that means, to companies and investors alike, is that if a mine is headed toward production, there is the possibility of making more money than they could have ever dreamed about. Major mines are burning through their own resources at a tremendous rate with current worldwide production currewntly a rate of 85 million ounces per year. That, of course, means that they’ll be looking to junior mines to fill in the gaps and step up to the plate, and if the thesis is right behind Melman’s theory, junior mining shares could literally explode the way they did in 1974.
Melman’s favorite remains gold, and there are two great companies he’s currently interested in. Astur Gold has been developing a property that was investigated by the Ancient Romans, and it’s a unique opportunity because the Romans had very little mining technology. They would leave behind the visible sulfide ore at every turn, and that means the entire project has an array of sulfide ore actually pointing the path toward rapid development. His other current favorite is Arco Corp, which is currently working on a project in Oaxaca, Mexico. Artisans have been mining the site for centuries, and they’ve left behind extensive indications of where they found ore, so with today’s technology, the company's prospects for finding important new resources appear very favorable.
“I like gold very much,” said Melman. “At $1300 an ounce, the profit opportunities are immense, but mathematically, silver may go up in a higher percentage than gold because at $1300 an ounce, the number of people who can afford gold starts to decline considerably, but then they look at silver at $21 an ounce, and 1/60 the price of gold, and they say Hey, I can afford ten or twenty ounces of silver, and at least participate in the monetary precious metals. So, I think as price rises, we’re going to get a much higher compression of buying in silver than we are in gold.”
Should that be the case, there is a true happy hunting ground for silver in Mexico, mentioned Melman. Because they treasure mining in the area, and they’re supportive of the companies involved, it’s a win-win situation for investors, companies, and area residents alike.
In addition to looking carefully at the world economy today, though, Melman has also recently released his new book – Reversing the Way In. Available on his site for purchase, Melman discusses the world move toward a socialist economy since 1850 and how it led to today’s economic mess. He also supports the theory that only by diminishing the laws and regulations that currently surround us and restoring currency to a gold and silver backing, will we actually find a solid way out of today’s problems.