The Real Money Show
The Real Money Show - August 23rd, 2014
And welcome to the real money show. This is a number to start investing one eight seven seven eight silver and online the real money show.com little later in the show will be talking to Bob Hoy of institutional advisors.com. But first we want to get into a natural fancy color diamonds and the guys are here Jeremy. We have Paul and we have our grading expert Nicole Snippman in studio as well. Guys, let's get started. Paul, you are so passionate about natural fancy color diamonds. I know how much you love them. You're at your connoisseur. You're a collector and I really want you to tell us why you think people love investing in color diamond so much. That is a great, great question, John. It's a million dollar question in actual fact. This is a type of investment that is safe. It's secure. And it's the one of the only assets that I know that is an insurable. Our clients love natural fancy color diamond because there's no volatility. It's not looking at the stock market every day or looking at any commodity. It's looking at any commodities that jump up and down. It's a steady, progressive increase in value. It has a proven track record over the last 40 years since they've been keeping records. They have never ever dropped in price. This is in times of inflation, depression, any types of problems that's happening in the world, whether it's been the, you know, the tech bubble, whether it's been the real estate problems subprime. They've never ever dropped in price. In actual fact, in some of these real turbulent times, they've increased as much as 30, 40% in one year. Color diamonds have, because of this track record, they tend to double every four to five years in value. Now, when we say they double every four to five years, this is not just regular color diamonds. These are investment grades. These are diamonds that meet certain standards, certain criteria that we go out to try to buy. So whether you're buying a red diamond, a blue diamond, a pink diamond, these are the rarest of rarest diamonds. For in fact, like red diamonds, there's probably only a hundred in the world. So they're going to increase in value, you know, sometimes doubling every year rather than going up maybe five or eight or 10%. When we say natural fancy color diamonds of investment grade double every four to five years, this is on the type of diamond you're buying. It's like real estate. If you're buying a two, three carat pink diamond, they're extremely rare. They're going to increase in value, maybe 35, 40% a year. A fancy or a intense or a pink diamond, you know, depending on the grade will increase a certain amount. Ultimately, when it comes to the increases in value, a lot of it has to do with the rarity and the rarity is equal to its cost. The more rare the diamond, the obviously the more it will cost to procure that diamond. And in that respect, the more you can invest in a diamond, the larger the investment, the better your opportunity to ultimately have a diamond that doubles as Paul's discussing every every five years or so. It doesn't mean that every diamond does that. What we're talking about here is that color diamonds in general, they are, they do have that proven track record. They are not volatile. They've never gone down in price. So you're always seeing increases in these diamonds. It's not a guarantee per se that you'll get that 100% gain in five years, but it does mean that it's a very safe investment that these diamonds continue to move up year over year. And I can say from personal experience, we've never seen a diamond come through Guildhall that didn't have a consistent increase. Jamie mentioned that. Well, actually, Paul mentioned red diamonds is about a hundred in the world. That that's beyond rare. Why is there only a hundred red diamonds? Where are they coming from? Well, that's a good question. I'm not sure where every single red diamond comes from. What we do know is that it is extremely, extremely rare that when it comes to trying to calculate just how many red diamonds are out there, that's an equally difficult task. I know that the Vatican has a cross that they've put a whole bunch of red diamonds in. Yeah, they probably have half the red diamonds in the world. No, actually, most of the red diamonds come from the alcohol mine in Western Australia. That's where they produce 90% of the world's purposely pinks, pinks and reds, which is actually one tenth of one percent of their total production. So, they're extremely rare. Some diamonds are actually cut from pink or purposely pink by cutting back on some of the diamonds. You can actually turn that diamond into a red diamond. But, Nick, oh, you know a little bit more about what makes up a color diamond. Well, pink diamonds and red diamonds, they get their color from the way the diamond has been formed, deep beneath the surface billions of years ago, and it has to do with the composition, the way that the carbon atoms are arranged that brings the color. So, there are some folklore or mystique around red colors because some people believe the color comes from directional distress, which is the irregularities that are formed within the crystal lattice during the forming process. Some people believe that they don't know, and that's what brings the mystique about them and the rarity that they just don't know how they're formed. So, there is a lot of discussion about how they're formed, but that is how they get their color. Really, it's the, they call it the plastic, it's kind of a deformation really in the crystal lattice. So, with reds, you just have to have that intense concentration of heat and temperature forming together and pressure rather forming together. So, very, very rare. You can always get more information by going to guildhalldiamonds.com and the number is 1-866-274-9570. Again, 1-866-274-9570. You know, like any investment there are fundamentals for investing. Jeremy, can you speak to our audience a little about the fundamentals and how this affects the price of color diamonds? Yeah, Nicole was talking about one, not just in red diamonds, but in all color diamonds, they are very rare and that comes from obviously restricted supply. There's only so many colored diamonds out there. The cliche is, of course, that for every 10,000 white, there's a colored diamond and that doesn't necessarily make it a quote-unquote investment grade. It just means it happens to be a diamond with color. So, finding a diamond is very difficult. They are very, very rare to come across. There's no diamond mine out there that's mining specifically for colored diamonds. Even the Argal mine, which produces 90% of the world's pinks, that's 1/10th of 1% of their entire production. So, that's not why they're in business. It's just a good side for them. Then, you also have the demand. This market really got kickstarted in the 80s, but investors took note in the 70s. It really started to take off in the 80s. And now, with the opening of markets like Asia and the Middle East, you've got intense demand all over the world for colored diamonds. So, you have a lot of people looking to try to own and procure something that's extremely, extremely rare. Imagine, you know, imagine as many people trying to get a Picasso, right? That I'm sure his prices have gone up exponentially in the last 10 years. Well, for every 112 of those that go into auction, there's one blue diamond. So, there's a mass amount of appeal, a mass amount of demand. This is a huge fundamental. The supply side, of course, these diamonds were, as Nicole mentioned, were created billions and billions of years ago. They're not going to, the earth isn't creating any more diamonds. And there's a limited finite supply in the interim mining, mining operations are shutting down. Again, the Argyle mine is slated to close within the next few years. So, there's a finite supply, huge demand. And this, this is why, year after year, we see record-breaking auctions in colored diamonds, year after year, we see the prices moving up. This is why the price is not volatile because they are so rare, they are in such high demand, it just continues to increase in value as a result. The number to call is 1-866-274-9570 and the website as well as guildhalldiamonds.com. Nicole? Just wanted to add to Jeremy's thoughts on supply and demand that now there's so much more awareness for natural, fancy colored diamonds than they're ever where we have a wonderful organization in our business called the natural colored diamond. And they promote the beauty of diamonds. We also see celebrities wearing beautiful diamonds on the red carpet, and there's a lot of news items, auction records that are continually to smash records like $46 million for a magnificent 100-carat diamond. So, the world has taken notice, so more and more people understand this investment and they're turning to it as an alternative to regular traditional investments. As a woman, I can say that it's an easier investment. Paul was talking about risk, there's very low risk with it, has a proven track record. So, for a woman or for people that don't like a lot of risk, it's a perfect alternative to stock markets and volatile markets, such. Jeremy, you guys say the seminar coming up, I believe the date is Saturday, September 6th. Do you want to give me some details on that? Yeah, we do seminars on colored diamonds. People really appreciate it because A, they get an opportunity to see a few diamonds, they get an opportunity to meet Guildhall, and they get an opportunity to learn in more detail what colored diamonds are all about. We like to tell some stories about some famous diamonds as well as how they progressed into such a wonderful investment today. So, there's a lot to learn. We do investments on colored diamonds as well as we do deal in precious metals, but we do particular seminars on colored diamonds because it's a great opportunity for people to actually see the colored diamonds. We always bring out a few. We show people how the investment came about, why it's so popular, why it's going to continue to move, why it's such a great opportunity, and of course, people get to meet and greet Guildhall. So, there's a lot to learn in a short amount of time. If you're looking at the investment even slightly or looking maybe to buy some jewelry and want to get some knowledge on certain criteria, you should be looking for when buying even just a regular diamond. This can be a very helpful seminar. And again, that date is Saturday, September 6th, Supreme Luxury Event Venue, that's 83-11 Western Road. In Woodbridge, and you want to register 1-866-274-9570 or GuildhallDiamonds.com/seminar. Get in there early. It's going to fill up seats or limit it. We'll take a short break here on The Real Money Show. The number to start investing anytime 1-877-8 Silver and TheRealMoneyShow.com. We'll take a short break and coming up a little later, Bob Hoyle will be here to tell us about what's in future for Silver and Gold right here on The Real Money Show. And we are back with more of The Real Money Show 1-877-8 Silver and TheRealMoneyShow.com. We'll get back into this. We're talking about natural, fancy colored diamonds. We took a break before the break. We were discussing why people love natural, fancy colored diamonds and the fundamental spot in the huge inclination for investors to turn to natural, fancy colored diamonds for store of wealth. Paul, can you talk about that? Yeah, absolutely, John. I love natural, fancy colored diamonds because it is a way to actually keep your wealth and not have it confiscated. Jeremy said in the first segment how rare these diamonds were. There's no new mines coming online, which is absolutely correct. If you're looking to retire or if you're looking to put your kids through school, this is probably one of the best investments you're going to make and probably the best kept secret. They tend to double natural, fancy colored diamonds, especially the quality we have every four to five years. Now, if you're buying a diamond for $25,000, for example, you can look to get $100,000 in 10 to 12 to 15 years, maybe even higher, up to $200,000 if it's an Argyle Pink because the mine is closing down and it's becoming very, very hard to find an Argyle Pink. So, again, it's something, oh, the safe, it's secure. You can ensure this product. There's not many items that you can ensure against all types of things going wrong in the market, whether we talk about subprime, whether we talk about the stock bubbles or anything else that's going on that can hamper your wealth. If your kids, grandkids, you want to leave them something, when you get into your mid 50s and 60s, you can't gamble on your investments. You have to be into something that's worthwhile, that's got a proven track record, and as I said, over the last 40 years, natural, fancy colored diamonds have never, ever dropped in price and they tend to go up and up and up. If you look at white diamonds, for example, everybody knows about white diamonds, there's lots of white diamonds out there, but they don't go up in value. There's only a specific few white diamonds that do go up, like Elizabeth Taylor's white diamond, which was, you know, a huge side of a bagel, you know, those are diamonds that go up and they have, because it was from Richard Burton, they have some type of worth to it. But the average person buys a white diamond, it's an engagement ring, or they get a 10-year anniversary present or whatever, they really don't go up, it's just recognition of someone's love. If you love that person, you should really look at investing in a natural, fancy colored diamond. The number 1-866-274-9570 online guildhalldiamonds.com. Want to get into what makes an investment grade diamond and we'll turn to our diamond grading expert, Nicole Snim, and GIA-trained industry professional. What makes an investment, and first of all, what does GIA, what does that mean for you? GIA is the Gemological Institute of America, so they're the foremost authority on diamond grading, so everyone in the industry uses GIA for the diamond grading reports. Investment grade, that's what we're talking about, what makes it an investment grade, other than being, you know, the size of a bagel and from Richard Burton. Right. Well, there's four value factors, and these were determined by the GIA in the 1940s and 1950s, they came up with what is called the Four Seas, color, cut, clarity, and carat weight. When you're looking at natural, fancy colored diamonds, the very first thing you want to consider is color, so it's color, color, color, much like in real estate when it's location, location, location, it's all about color. And it has to be the most saturated color, so you're looking at different use, you're looking at yellows, pinks, blues, reds, but you also want to look at what is very rare, extremely rare, rare, and what is just rare. So a lot of people might, they've heard of brown diamonds, black diamonds, gray diamonds, those are not rare, therefore, they're not valuable. So you want to, the color is very important, the type of color, there's nine color grades ranging from very light, faint, faint, and then light, all the way through to vivid. We start looking at fancy, so we look at fancy, intense, and vivid for your color grades, so it's very, very important color, the body color, and the way to get the color is through the cut. So the cut brings out the color and the beauty. So if you have a very skilled master cutter, he will take a rough diamond, polish a facet, look through and determine what kind of color grade it's going to be based on the rough, he's going to determine the clarity grade and he's going to determine how this should be fashioned. So you could take a two-carat diamond, for instance, and it could have many inclusions, and it could be turned into a one-carat, vivid, internally flawless diamond, so it's really going to depend on what the master cutter decides is going to happen with the diamond. So he will take a carrots-worth material off that to increase the grade of the diamond. Exactly, that's going to bring more value, so it's all about when you're looking at investment grade diamonds, it's about the color, and then you want to look at the cut. So the cut refers to a variety of things, it refers to external factors on the diamond, so any nicks, marks, scrapes, those are your blemishes, and it refers to internal characteristics or flaws, and those are your inclusions. So we want to look for a high clarity grade, and we'll get into clarity in a minute, but the cut is going to bring out what clarity grade you end up having. Does it depend the cut on the color of diamond as opposed to a pair or cushion cut, does it matter? Well, there are certain cuts that will increase the saturation of the color and bring out the color, so you're looking at your radiant cuts, your cushion cuts. These cuts are called fancy cuts, and what the fancy cut essentially means is that anything other than a round, brilliant, is deemed a fancy cut, so it's your pairs, your ovals, your emerald cuts. So for color diamonds, we tend to look at radiance and cushion cuts because they maximize the color, but then in the industry, if you have premium cuts such as ovals and pairs, they're beautiful, and if they can retain the color and hold the color and be evenly saturated, they're very hard to find, especially if they're evenly distributed in color, so there's a premium on those cuts. So then you also want to look for your cut at symmetry. Symmetry, beauty is in the symmetry, so if you have a pair, your sides have to be completely even on each side, it has to be beautiful, and then you're looking at the polish. So how is this diamond finished? Are there polish lines, grain lines? How is the girdle? That's the perimeter around the diamond. So you're looking at a variety of things for cut, how the color comes through, what the symmetry is, the polish, how it's fashioned, and then you want to look at clarity. So I was just mentioning about your external factors and your internal factors, which are blemishes and inclusions, and you want to have a high clarity grade. Now, for each color, it's going to depend what that clarity grade is. So, for instance, we were talking at the beginning of the show about pinks, due to the way pinks are formed in nature, because if they're graining irregularities, you don't see internally flawless diamonds. But you do see a lot of SI, which are slightly included, we look to VS, as an example, very slightly included, because that's considered a very high clarity grade for that color. And then we want to look at carat weight. So for each color, there's a minimum carat weight that's going to bring value, and we can talk to you more about that, but for instance, I can tell you that for yellows, we start at one carat, that will bring you value for an investment grade diamond. So just to top up, you want to look at all of these value factors, but you want to look at them together as well, because that's how, at the end of the day, you can have everything on paper, but you have to look at it and say, "Is that a beautiful diamond? Does it have fire? Does it have brilliance? Is it beautiful to look at? And most importantly, is the color exceptional?" I also realize that I already need an expert to do this. I'm not this guy. Just what you mentioned with the Four Seas, I would never tackle this on my own. You need to come to Guildhall Diamonds and get an expert with you. Absolutely, because we've seen this time and time again, when people bring us diamonds, you can have two diamonds, they're both the same carat weight, they both might be the same shape, but one might look clunky and not have the light return, and the other one might be exquisite because of the way it was cut. The diamond is sparkling, it has scintillation, the color is beautiful, and it just sparkles, it's very magical. 186-6274-9570 at GuildhallDiamonds.com. Jeremy? I think it's interesting when you're looking at those Four Seas that typically when someone is going to buy a diamond, whether it's to mark a milestone in anniversary or getting engaged, whatever reason that you're out there to buy that something special for someone, most of the time, they're interested in two things. They're interested in the size, and they're interested in the shape, and you mentioned cut, but those are the two factors that people are mainly interested in in terms of for fashion or whatnot. It's really the other factors and that second half of cut, which is not just the shape, but how well it's shaped, that it's these other factors that are really helping uplift that diamond into something that's ultimately very rare and ultimately considered investment-grant. There is also a fifth sea, which a natural fancy color diamond is a currency. It's portable wealth and it can be sold somewhere down the road. In any currency, whether it's US dollars, whether it's yen, whether it's euro, sterling, Canadian dollars, it can be put into several different markets. Well, I just wanted to add that one, to Jeremy's point, when people are looking for diamonds, say it's for an engagement, you have something in mind because you've seen all the marketing and you just have something in mind, and those value factors might be very personal to you. For instance, you might be interested in clarity. You might be a perfectionist type in A personality, and clarity is very important to you, or size might matter. So, for white diamonds, it's very personal, but when you're looking at investment-grade diamonds, you have to consider the color first because the color and how rare that color is, that's what's going to make you money. And at the end of the day, this is all about making you money and passing on your wealth, preserving your wealth and passing it on. Nicole, I mentioned earlier that you're the author of the 10-step Buyers Guide. This is something you should have and get by calling, but describe and tell us what it is. I wrote it. It's not technical. It's very easy to follow, but it's basically the 10 steps that everybody should know from looking at color, clarity, all of that, but there's also little tips and tricks because there are people out there selling diamonds that you might not know what to do. And, for instance, brown diamonds. We hear about them all the time, cognac, champagne, chocolate diamonds, and you might think that's investment, and it's not. It's really very simple, but it acts as a checklist. When you're shopping around and looking at different companies and looking at diamonds, and I think it's quite helpful. If you'd like to get it, you can just call us for it, or if you come out to the seminar, we're happy to give you a copy there. The seminar, by the way, is Saturday, September 6, Supreme Luxury Event, Ven. 83.11, Weston Road in Woodbridge, space very limited. 1.866.274.9570, or register online at guildhalldiamonds.com/seminar. We'll take a short break here on The Real Money Show. The question coming up is real estate investment in Canada, and a bubble will find out Bob Hoy of institutionaladvisors.com is coming up. The number to start investing 1-8-7-7-8 Silver in the realmoneyshow.com online. And, back with more of The Real Money Show, 1-8-7-7-8 Silver and The Real Money Show.com, joining us now, Bob Hoy of institutionaladvisors.com. This is a Canadian veteran financial analyst, trader, market historian, and advisor and author of the newsletter Pivotal Events. His research expertise over several decades enable him to share his knowledge on Canadian real estate and hard assets like gold and silver. Bob, welcome to the show. Hi, Bob. It's great to have you here. It's great to have a Canadian veteran analyst and give that Canadian perspective on the market, so we're really appreciative of you to join us today. I'd be with you and your listeners. And, speaking of listeners, I think they're all ready to find out, is the Canadian real estate market overheated at this point? Yeah, I think it would be. You've had a terrific advance in overall prices for residential. And it also, as everybody has noted, survived the collapse of residential real estate prices in the United States. And one would think that the markets north and south of the border would be somewhat similar. They usually are, but in looking back on it, you could say that perhaps the Asian bid, particularly as we see it in Vancouver, and also as it's been exercised in Toronto, has been fabulous. And, but also there was an Asian bid in the United States, but I think their domestic problem situation was so much leverage, and when it started to come down, it overwhelmed whatever buying power that Asia would have or could have employed. So we've been, let's call it kind of a protected market, but like anything else, an outstanding run, the longer it goes, the more vulnerable it becomes. And what would be the vulnerabilities? One is that the US market, which is still the senior economy and the senior currency, has been coming out of the crash that ended in 2009, has been on a terrific financial boom with rather discouraging economic numbers and employment numbers and like that, but the big action has been in the stock market and in the lower grade bond market. And it still could be called a regular cyclical economic recovery out of a crash. This has prompted some rise in commodity prices, but not a terrific rise. As a matter of fact, a lot of the speculators in commodities and gold and silver have been quite disappointed because they've looked at the reckless ambition of the central bankers, particularly the Federal Reserve system, and figure that that has to go into commodities, but it hasn't. Moving on into, well, for example, the junk bonds, the total return, including price and interest payments, from the end of the crash in 2009, has been about 150%. The return from stocks has been about 90%, and I just calculated a little earlier today the return on commodities like the CRB has been about 40%, so the usual interest or the usual link from central bank ambition to price rallies has been confusing. The way we look at it is that the public chooses what it's going to speculate in, and all the Federal Reserve has is the ability to ease credit, and it never tightens credit, but at any rate it's gone into stocks and bonds. Now, technically the degree of speculation can be measured, and about a couple of months ago on the stock market, if you look at sentiment and momentum figures, there is high as they got in 2007, and almost as wild as in 2000, which were magnificent bubbles, and were followed by equally magnificent declines, so then how does this relate to real estate in Canada? So I'm going to go back on my memory and some rough research here, but you did have a huge bubble in commodities and are accompanied by a serious consumer price inflation, the rate of inflation got up to something about 15%, that was wage inflation as well, and then the real focus was on silver and gold, which blew out and completed its move in January of 1980. Now, at that time, house prices in the United States and Canada were very strong, this was considered a sure thing, and from the highs of round 1980, if you take British properties on the North Shore here in Vancouver, which is high-end stuff, a lot of business people, there's expense account people, it's not old Vancouver, well prices there fell two one-third of their high, that's not one-third of, but two one-third of the high, this was also confirmed by a history of one particular house in Toronto in the Forest Hills area, which is high-end, and it was reported occasionally by, in the financial post, there was some Wheeler dealer promoter guy in Toronto, got himself into trouble, felony, the whole thing, and the trust company seized his house, and it was carried on the books at, I recall, something like a million and a half dollars, and then about every six or nine months, the financial post would write this up, and by the time the paperwork was done, and the trust company off-loaded the house, the price was at one-third of when the game was closed. So this was what reflect residential real estate prices in many regions in Canada, it just depends on how high they got on the boom, but here in Vancouver, in Caresdale, comfortable, middling-type homes, well they fell in half. The other one is on, another one that comes to mind, is that there was a property downtown Vancouver, where the now lovely Shangri-La Hotel sits, and that was undeveloped downtown property prime area, and then when the deal was finally done a number of years ago to get it in the hands of the current developer, the newspaper article noted that it was valued at about one-third of the price it had been in a previous boom, so it's amazing how that number seems to have appeared in a number of different, in both residential and in one example of a commercial property. So in the past, real estate has dropped by two-thirds, what about the present? Well, let's take a look at some of the events here. The bubble, financial manion bubble that concluded in 2007, was what we described at the time as a classic bubble, like 1929, or so many ones earlier in the past, where you have a new issue, a new financial era where things that are going on are considered easy and will go on forever, but in effect are quite dangerous. And then with these classic financial bubbles, you've also had a reasonably good market for residential property and a reasonably good market for most commodities. That was not the case in 2007, the 2000 bubble, that was just all tech stocks and there was hardly any action in real estate or commodities, but even going back to 1929, the feature of that mania on the real estate side was the madness of the speculation that was going on in property in Florida. And then when it crashed, it impaired the credit markets quite something and then finally when the stock market crashed, that was made sure that you ended up in a long post bubble contraction. And this is also worth noting that in the past examples, the first great financial mania blew out in 1720, it was the South Sea bubble, and most of those characteristics were replicated on everyone since, and 2007 was number six. But the main thing is that each was followed by around 20 or 25 years of what would call a post bubble contraction where people looked at all of the debt taken on in the mania and say, that's awful, I've got to get out of it. And the whole unwinding process can take a long time. And also the regular three to four year or five year business cycle continues. It's just that the expansionary parts become weak and the recession is a little more severe. There's a lot going on here because obviously there's interventions from central banks, keeping interest rates low, that's fueling it. Then you've got, you're saying what's what's levying it in the interim is foreign investment as it were, Asian demand for real estate in Vancouver. In Toronto, when we look at our sources in real estate, we're getting, you know, Russian investment, Asian investment, Indian investment. So we're seeing a lot of that helping fuel it. The question is, of course, these can't last forever. And if it were, if real estate were to come off, let's say 20%, not two thirds as we were talking in these speculative bubble bursts, but if it were to come off, say 20%, what do you think the fallout of that would be? Well, anybody who was highly leveraged and new, you know, late buyers who were leveraged and with a huge mortgage on it are going to suffer. But in this age of volatility, and, you know, the Asian bid is not going to be there all the time because going back to 1989 when the big bid was from Japan. And they were bidding up asset prices all around the world, Pebble Beach and all that sort of stuff. And then they collapsed. They suffered the financial hardship. So you can say, as a rule of thumb, the bigger the bubble and the mania, the more severe the subsequent contraction is. So here what we want to do if we're looking at timing on this, the stock market and the U.S. low-grade bond market would be a good guide. And we're going into a period when credit markets can get worked over very severely. That's September and October. And we have had great excitement, wonderful confidence in the credit market up until recently. So there's a probability that this five-year bull market for stocks and low-grade bond and the five-year recovery as weak as it's been would likely begin to contract. And we might see a sign of this somewhere in September, and in which case many of the listeners who may be a little overextended in real estate would say, let's sort of clean up the house a little here and protect ourselves. Because the part about inflation in hard assets, the opinion now, and this is seen in gold bugs and silver bugs, and those who are permables on commodities, is that they see all of the recklessness done by the Fed. And it has been reckless as somewhere in a few years from now this will bubble up out into base metals, say for example, or into gold and silver. But the view that history provides is that at the moment the recklessness of central banks is founded upon the bid in low-grade bond markets and in the stock market. The bid goes away, so if you get a normal cyclical bear market to the bull market in stocks and bonds, that then, you know, the players are going to get hurt. The credit markets will become wary, and you're not going to see a sudden switch over, but what you can get is that the key to figuring out gold, and here's where it becomes just plain methodical, is that in every post bubble contraction, there have been five previous ones. The real price of gold goes up, and then by the real price, I mean, you can deflate it by the CPI or by a producer price index or just straight relative to commodities. So the pattern has been that gold has set an important low as a boom concludes, and price of gold has come down a long way since 2011 on this boom, and it's trying to base in here. We'll take a short break. The numbers start investing in the meantime, 1-8-7-7-8, silver, and online at therealmoneyshow.com. This is The Real Money Show. The numbers start investing 1-8-7-7-8, silver, and the realmoneyshow.com. We're back with Bob Hoy of InstitutionalAdvisors.com. You mentioned before the break that gold is basing here. What about going forward? Gold's real price did decline with this latest boom, excuse me, and is recovering as the boom seems to be rolling over. So then let's just spend a little time on the real price of gold, because as it goes up, and that represents a price reminding gold that is improving relative to the cost of gold. One of the major costs, of course, is energy. So you've had crude oil heading down recently from 107 down to 96, and that reflects energy costs, and it takes a lot of energy to operate a mine. And this has been going on for 300 years, whereby in each post bubble contraction, the real price of gold has done well. Eventually profitability returns to the gold mining industry, and then eventually it becomes highly speculative. So what we look at here now is that the good times in stocks and bonds, and the moderately or ironical weak recovery in the economy, is a cyclical event that is peaking and will decline. And the same time the decline in gold nominal price, I mean the price in dollars, and the decline in the real price relative to commodities, that's been really serious since 2011, and is the cyclical opposite to what's going on in orthodox investments. So this is setting up the big opportunity in the gold market. Now, in reviewing all of this history years ago, there were other industrial concepts or innovation that came along where you might have a company that would do well, or a sector that would do well. But the one that was methodical was the recovery in the real price of gold, and the recovery in the profitability of the industry, and then eventually it becomes the darling amongst investors. So our advice to many people plus institutions would be to have some gold definitely now and watch for the opportunity to buy some gold shares. So let me see if I'm hearing you correctly, we have a bubble bursting in '08, which was financial leverage. You've had a really bad recovery for the last five years, which looks like it's about to roll over, induced of course as much as possible from central bank intervention, and you see these bubbles as we were talking about earlier with real estate as an example. But in your opinion, it looks like it could roll over any day. You could see that with the mania. People just believe that the stock market could just keep going up forever. Yeah, central banks can keep going on doing whatever they're doing forever. The fact is they can't, history shows us that it's about to happen, and when you see the cycle reversing gold being at a low here, this would be a great entry point. For sure, I would, we're not shy about saying this one, that fund managers and individuals should be owning gold itself right now, and as I noted, at some time there'd be a great buy for the gold stock, and I would be wary of being highly leveraged in the real estate market. You know, you have your home, and that shouldn't be part of the equation of whether you're making money or losing money, but if one is overhomed, is that a vicar into phrase on that one? It would be time to protect yourself, reduce the exposure, and this should be, if one watches the stock market and also lower grade bond markets, this should begin to show up by late in September. It's also worth noting that wherever you've got financial history, which is pretty good stuff back to the 1360s, that if there is a problem in the financial market, it will be discovered in the fall of the year. You can find them at other times of the year, but the biggest liquidity problems have all been discovered in the fall of the year. I noticed that when you hear, you know, Fed chairman, women talking, they can really talk up a market, but if something goes wrong in the market, it's very difficult to then all of a sudden be talkative and try to get the market up. I think that's why investors are keenly awaiting what Mario Draghi has to say, but again, they're going to intervene, right? They're going to create more money, lower interest rates as they can, and keep trying to hold on to the position that they currently have. Why do you think it is that, at least on the ground level, everyday people, we're experiencing inflation, whether it be insurance, gas prices, food prices, wherever it is, and yet, I would think a lot of gold investors would be frustrated by the fact that it hasn't protected against inflation. Now, I say that, of course, knowing if you'd held it for the long term, it obviously would, so I hope I'm not answering my own question there. Yeah, oh, yeah, you hit the right thing. Typically, the real price of gold is declined with a bubble, and we've had a bubble in stocks and bonds, and the price of gold has gone down, which is the way it works. So, though, over a lengthy period of time, yes, holding gold will protect you from inflation and deflation, but like anything else, it has seasons and times and cyclical stuff. So, our work on gold in 2011 was we take, in a normal rally for gold and silver, silver will outperform gold. So, what you do is you take the silver gold ratio, and then you run a momentum thing on it, which is called the RSI. So, we're watching where historical work from ages ago noted that in the bubble for gold and silver that concluded in January of 1980, that the silver gold ratio began to change two weeks before, or something like that, maybe three weeks before the actual top. So, then, after that, making that discovery, we looked at a number of other bull markets, and indeed, that's the case. So, what we do is we take the silver gold ratio, and then the momentum on that, the RSI, and in, I think with April 2011 in there, that RSI got up to 92. So, we checked back, ran it back, and the only other time it got up to 92 was in the very fateful January of 1980, and we all know what a horror show that bear market was for silver and gold. So, then, when it hit that, 92, in 2011, we advised that it was a mark of danger speculation in the sector, and we also noted that it wouldn't, it would be bad, but not as bad as what followed 1980. This generally worked out, but then there was another attempt to really ram gold and silver to the moon, and that was in September of 2012. And on that one, the RSI got up to, I think, was 82, but it was enough to say that, again, this is a measure of intense speculation, and it was also dangerous, and that further price erosion would follow for both metals. So, all we can do and say that on the precious metal sector is that it's bottoming, and because you take a look back, that was a little more than a decade-long bull market for precious metals and precious metal stocks. And the culmination of it, some of the senior gold miners were doing very reckless things, like starting up mines in difficult geological terrain or geographic terrain in places in countries that were politically risky. And then there's been a whole lot of write-ups on that. So, one would not expect the excess of a decade-long bull market and precious metals to be corrected in a year. This is now 2011 to, you know, over three years out, and then now you've got to face probably a severe liquidity crisis in the fall. So, gold would be expected to act well, right through a liquidity crisis, because the careful and safe and conservative money in viewing a potential crisis will go to the most liquid items, and that would be treasure bills in U.S. dollars. And also, gold provides in the unique liquidity. And remember that these people are not moving into these assets in order to make money. It's work in your pocket where it's going to be safe and you can get it back. So, the investment demand for gold is there and it will continue. And I would urge a listeners that not to pay too much attention to the day-to-day swings in the price of gold in either Canadian or U.S. dollars. But, too, you can take it if you've got a screen and take just a quick calculation on it is just to take the dollar price of gold and divide it by, say, the CRB index. And so long as gold is outperforming the CRB, then the pattern of the next contraction is working. So, you can even use it as an indicator. The other one that many gold and silver bugs seem to overlook is that the ratio between gold and silver itself, we mentioned the silver gold ratio, but more typically one comment on the gold silver ratio, and it has a tendency to rise going into financial distress. So, if somewhere in later in September you get a day where silver is down a whole bunch and gold is not, that's an indicator of financial trouble pending. And I've for decades wondered how did the silver and gold traders know this, but it sort of acts like a credit spread, and when it starts to go up, it will be working with credit spreads as they start to widen. I think to kind of review things on our conversation here is that the big action has been in lower grade bonds, and they look like they're in an ending pattern. Now, the stock market rise has been very, very good, and it looks like in an ending pattern, and we just updated our study on the European stock market. And there are stocks 50 index, it's at a high in June with technical alarms going off, it's had a longer decline and it had a greater decline as far as taking out key moving averages, so now unlike anything else it has to have a bounce to kind of test that high. But for our listeners we would be watching the real price of gold, the lower grade bond market and the European stock market, this would give a lead on when the next liquidity crisis would be long. And with that we'd expect the real price of gold to continue up, and you'd even get a good rally from time to time and the dollar price of it. And Bob, we just have a few seconds left here, I'm curious where you ultimately see a price of gold and silver going, and how would people get in touch with you? Well, we can get in touch with institutionaladvisors.com, or now with the magic of the Internet, if you just Google my name, B-O-B-H-O-Y-E, it'll come up and get you into our system. We welcome interested people and subscribers, and we put on a free trial, and if you like it you can get on, if you don't, that's fine with us. But what was the other part of the question? Where you ultimately see the price of gold and silver headed? Now, gold will out in a post bubble contraction, gold will outperform silver by a long shot, so we would not be speculating in silver stocks now. And we wouldn't be accumulating gold stocks now either, but the end result, once they get passed November, when if there is going to be a problem, it would likely be cleared by then. Then you could look at gold and silver stocks, and then a couple of years after that, you could get into a highly speculative market for the sector. So, first of all, gold, and then at some time gold stocks, one should be investing in. Bob Hui, I want to thank you for being with us today. Thanks a lot, and it's good to be with you. I look forward to hearing from you soon. And I want to thank Bob Hui of institutionaladvisors.com. You want to start investing right now would be a good time, 1-8-7-7-8-Silver and the RealMoneyShow.com. He's an exceptional assassin. To celebrate the thrilling new series, The Day of the Jackal, Showcase and Stack TV are giving one lucky viewer the chance to win a trip to London, England. Police all over Europe are looking for him. Let's go as a ghost. Head over to our Instagram and see the contest posed for details on how to enter. I'd like to win. So do I. And watch the new series, The Day of the Jackal, premiering Thursday, November 14, only on Showcase, stream on Stack TV. TAC-TV.