BC Election May Boost Miners

05/21/2013 6:15 am EST

Focus: COMMODITIES

The seeming invincibility of the "right" in British Columbia's provinical politics bodes well for the Canadian mining industry, says Leonard Melman of The Melman Report.

As recently as 1998, the contract price for unleaded gasoline was below 50 cents per gallon, and now—15 years later—it's six times that amount!

In terms of many other consumer items, such as motion picture tickets, home prices, total taxation, many foodstuffs, etc...despite all the talk of inflation being under tight control, that has simply not been the case in the real world.

The most important feature of apparently keeping total costs under any strong control is the iron hand exhibited by the Federal Reserve Bank, by holding interest rates at artificially historically low levels. Future interest rate movements will become increasingly important within the overall precious metals price equation going forward.

An election which could have a major impact on the Canadian commodity scene took place just this past Tuesday.

For the past 40 years or so, political power within British Columbia—Canada's West Coast province—has been alternately controlled by parties of the right, including Social Credit and the Liberals, and by the dominant party of the left, the New Democratic Party (NDP).

A clear impression has been formed within the mining industry that parties of the right are at least nominally neutral when it comes to our industry, but the NDP has proven to be relentlessly hostile.

During their last sojourn in power, the NDP became noteworthy, among other actions, for their cancellation of the important and advanced "Windy Craggy" development. The permitting process became so complex that the Ministry of Mines became known as the "Ministry of No Mines."

A local newspaper noted in a recent commentary, "...And there is little doubt that NDP governments of the 1990s hindered (growth), with taxes that caused miners to flee, choking forest regulations to appease urban environmentalists, and infantile tantrums aimed at both the Canadian and US governments."

[Editor's note: The election was won by the BC Liberal party, despite an NDP poll advantage of as many as 25 points earlier in the race. The upshot, which has yet to unfold in so short a time, is that miners and drillers that were holding back on new projects because they feared an NDP regulatory flood may now resume their activities. It should be a bullish development.]

Frankly, it is difficult to imagine an era when the presumed application of logical thought has been quite as unrewarding as the present era and the world of precious metals price forecasting has been a particular victim of these circumstances.

Reliance on logical thought has also been unrewarding in other areas of financial analysis as well, and a recent article in the Globe & Mail demonstrates this concept.

As noted, the recent decline in general commodity prices should have driven the Canadian Dollar lower in comparative currency price quotes. As the G&M article states, "...Canadian investors should add to non-resource US dollar assets to benefit from the high probability of weakness in the Loonie..."

The logic seems particularly sound. The Canadian economy is truly dependent upon strength in resource prices, and there has indeed been some recent weakness, with the CRB cash index dropping from near 700 to about 550.

However, instead of collapsing, the quote on the Canadian Dollar over the past few months has been relatively quiet, maintaining a comparatively narrow trading range relative to the US Dollar of from 94 cents to $1.06 over the past two years, with the present quote coming in just under par.

Our only point in this exercise is to illustrate the difficulties which can occur when seemingly solid reasoning is applied to trading markets.

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