Thursday, November 27, 2008

Bob Hoye: the voice of reason

I always enjoy Bod Hoye's work, his lucid and clear analysis of the gold market is a standout among the backslapping tendencies of many gold-bug newsletter writers. You can find Mr. Hoye's writtings at, this article was posted on



NOVEMBER 25, 2008

• Gold shares were expected to decline with the financial markets into dislocating

conditions expected to culminate in November.

• Gold's nominal price in dollars was likely to decline as most of the panics would occur

with the dollar rising against most other currencies and most commodities.

• This was based upon the course of significant events though previous great bubbles

and their consequent contractions. The following page of charts shows the pattern for
gold's real price through the biggest manias, including the first one in 1720. Within
this, the gold premium which was at 118 in August 1873 fell to 106 as the crash ended
in that November.

• Typically, gold's real price declines through a financial mania, and just as typically

gold shares underperform the stock market.


• Typically, gold's real price increases during the economic and financial contraction

that is consequent to a bubble.

• More specifically, we used the behavior of the yield curve and credit spreads through

the 1929 and 1873 manias as a model for the path that would define the eventual
collapse of our bubble. This expected that the key reversal to adversity would occur
close to June 2007. The reversal in the yield curve was accomplished in that May and
spreads reversed in that fateful June.

• Of interest is that the real price of gold, as represented by our Gold/Commodities

Index, reached a high of 255 in June 2003. Then as that boom launched, the index
began a cyclical decline, which reflected diminishing profitability for gold producers.
Rising commodities relative to gold reflects basic mining costs rising relative to
bullion sales.

• The most reliable indicator of the end of a mania has been the change in the yield

curve. It was significant that this was also the cyclical low for our index at 143 in May
2007. With November's panic, it increased to a high of 339. We thought that this
measure of gold would double on its cyclical bull market, which has further to run.

• This has been indicating that operating costs have been falling relative to the price of

gold and it should soon begin to drive earnings up, as earnings for most sectors remain
under the pressure of falling prices.

• The rise in the real price also increases the valuation of gold deposits.


• Although gold is an essential part of the yield curve, no traditional supply/demand

research on gold has ever anticipated the beginning of a classic financial contraction.

• Mainly, conventional analysis seems to be tedious gossip about what central banks are

doing with their reserves, what's happening with the Souks, Indian wedding seasons
and the monsoons. Marketing and treasury departments at big mining companies turn
gossip into reports so that the CEO can appear to be well-informed to the board of
directors and the media.

• Equally tedious has been all the finger-pointing about "conspiracies" as an explanation

about why gold and silver are not conforming to the dictates of traditional fundamental

• For two decades the World Gold Council has focused upon jewellery consumption as

the key to gold's price trends. Indeed, such demand grew strongly during this, as well
as the new financial era that blew out in 1929. Interestingly, this consumption was
essentially overwhelmed by the decline in investment demand that is one of the
features of a financial mania. Producers suffered poor operating margins. The real
price typically declines and then with some irony the wonderful demand for jewellery
slumps as the real price goes up in a crash. The point being is that in the real world
analysis of jewellery consumption can be misleading – especially during a financial
mania and its consequence.

• Then there is macroeconomic research. This uses hundreds of Fourier equations to

project gold prices, which seems to go over well with the treasury departments of the
big mining companies. The more popular services will provide three price forecasts.
One is a moderately rising trend line, another rises less steeply, and the third declines.
This saves both modeler and subscriber from making a judgment call. Moreover, the
accounting departments don't so much care whether the method is reliable. Any price
will do, so long as it is for the year-end.


• Gold shares had been likely to decline as part of the typical fall crash, which would

likely clear around mid November, and our advice since late October has been to
cover shorts in silver stocks and to get long the gold sector.

• A new bull market for gold shares has been expected to start in November and run for

a few years.

• This has been expected to encompass the whole gold sector, including exploration


• Based upon previous post-bubble contractions, this could run for around 20 years. Of

course, the usual business cycle would prevail, with the gold sector doing well on the


• Beyond being something to trade, the gold/silver ratio has been a reliable indicator of

credit conditions. It declines during a boom and does its greatest service when it
typically signals the contraction by increasing. The key move in 2008 occurred with
the turn up in May from 46. This was with the reversal in the credit markets and the
technical break out at 54 in August anticipated the fall disaster. Often during the more
acute phase of a panic, silver can dramatically plunge relative to gold.

• With the break above 54 our target on the full contraction became around 100. That

level for the ratio was reached with the banking crisis that ended in late 1990, when
the last of the 1980 adventures in crude, gold, silver and real estate were finally
written off.

• From a high close of 84 on October 28 with that panic the ratio declined to 71 with the

stock market rebound to November 5. The next rise with the next panic was to 83.5
on Friday, November 21, and the ratio can decline for a few months as the financial
markets recover in the first quarter.


One of the most fascinating aspects of great credit manias is that all six since 1720 have

occurred with a senior central bank with the dangerous prerogative of issue. Each bubble was
identified by the street as such until our era of asset inflations. Perhaps our financial
establishment has been so ignorant of the dynamics of a mania they were unable to make the
call in real time.

On the latest example, as late as December 2007 the advice was that nothing could go wrong:
"The truth is that Fed governors, together with their crack staff of Ph.D
economists and market analysts, are as close to an economic dream team as we are
ever likely to see." Gregory Mankiw, New York Times, December 23, 2007
So despite the inability of our policymakers to forecast another financial disaster such as
initially discovered last January, confidence remained that a full-out panic could be prevented.
The fall crash was remarkably similar to it counterparts in 1929 and 1873.

Historically, at the peak of each mania the establishment took credit for the prosperity, and
then found scapegoats in the bust. The mechanism seems to be at the boom the central banks
seem to be in control, but the truth is that once prices of the speculative games turn down,
power is immediately shifted to Mister Margin. In past examples, this overwhelmed
policymakers and continued until the contraction ran its course.

The notion that "liquidity" was driving prices up was dead wrong, as soaring prices fostered
the most aggressive employment in leverage in history. And as much of this involved being
long the hot items against cheap money in dollar and yen terms is was natural that as forced
liquidation started it would be accompanied by a rising dollar and yen.

Typically, one of the features of a post-bubble contraction has been the senior currency

becoming strong relative to most commodities, and currencies for most of the time. This
seems due to the flight to the unique liquidity found in treasury bills in the senior currency as
well as in gold. This has been working out.

In so many words, the investment demand for gold has been soaring as the wildest creation of

credit in history has been contacting. Once a mania is over traditional liquidity always
disappears and the role of a rising real price of gold seems designed to increase production,
which eventually increases real liquidity in the global financial system.

Our review covers three hundred years of history and while there is no guarantee that the

pattern will continue to work out, there is no guarantee that it won't. It is appropriate to be fully positioned for a great bull market in the gold sector.

Wednesday, November 26, 2008

Jim Willie makes a case- a failing case

Ive always enjoyed the writing of Jim Willie, I used to follow his work quite closely. At some point his writings became increasingly conspiratorial, fractured and just plain wrong. While I agree wholeheartedly with his contention that gold is in a long term bull market, his rationale is not only faulty, its been consistently wrong for over a year now.

Ill make my case, and you can decide.


Failed CB Franchise & Gold Explosion

By Jim Willie CB
Nov 26 2008 12:12PM

Use the above link to subscribe to the paid research reports, which include coverage of several small cap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces.

which small caps could possibly rise during a market panic?
lets ask the folks at the TSX Venture Exchange, down about %70 year to date, comprised largely of small cap commodity and precious metal plays. there is no supporting rationale to suggest these small caps will only now rise during any market panic, if there is, its at best an academic argument totally refuted by the behaviour of precious metal small cap stocks the past year. J
An historically unprecedented mess has been created by compromised central bankers and inept economic advisers, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

The OMEN for a powerful shift in the gold market in my playful mind was the very real earthquake on November 18 here in Costa Rica, a clear signal from the financial gods, no minor tremor, measured at 6.0 on the Richter scale. The tremor confirmed the tectonic shifts to come to the gold market without question. This was the biggest earthquake in my life, no damage at all though, roof and toys intact. Numerous stories testify in aggregate to a severe tightening of the physical market, certain to put pressure on the corrupt paper market managed by the COMEX and its parent NYMEX.

an earthquake struck the tropical paradise of Costa Rica and they somehow confirm shifts taking place in the COMEX market... lets see how this plays out because I love a good metaphor. too bad we never hear where exactly these "numerous stories" he cites actually originate from- other gold bugs attempting to sell newsletters notwithstanding. J


With global monetary inflation raging, and official interest rates converging to zero, the global central bankers must hang their heads in shame. THIS IS THE MOST VISIBLE, OBVIOUS, PREVALENT SIGNAL OF THEIR FAILURE.

The contained messages are four-fold:

  1. ABSOLUTE CONTAGION: the global economy is suffering from broadly felt toxic shock due to US bonds, a process that has a few more quarters of severe crisis pathogenesis

  2. POLICY EXTORTION: the major and secondary CB heads want to cut so that the US$ does not fall, coerced with a monetary gun at their heads

  3. INFLATION EXPLOSION: global monetary growth has gone ballistic, no longer a priority to control, with all talk about limiting price inflation relegated to mumbling in the corner

  4. ENDLESS RESCUES & BAILOUTS: the government sponsored bailouts are nowhere near finished, sure to be an endless parade of patchwork and stimulus with eventual climax of mortgage aid.

Just think of it. The USGovt, after a coup d’etat pulled off by Wall Street and fraudulent climax diversion of TARP funds, has yet to address the mortgage problem at all. Mortgage aid in meaningful and necessary terms is actively avoided, since it must come with a price tag up to $2000 billion in the United States alone. The nationalization of the US banking, if not financial system, is highly likely to be followed by an eventual virtual nationalization of the entire mortgage system. Such a decision and desperate socialist action will be the death knell for the USDollar, if it survives to the point when such a program is enacted.

The unbridled monetary inflation is a powerful bull market signal for gold, once asset prices stabilize.

the four points are sound, but this last bolded line does not. yes monetary inflation is bullish for gold, but why must asset prices stabilize? no rationale, just a tiny caveat that has massive implications for potential gold investors looking to enter the market but wondering how markets could possibly stabilize if the dire predictions of global financial collapse made in the rest of the article come to fruition? unless of course you purchase his newsletter which will tell you which stocks will somehow manage to rise during a global financial catastrophe despite virtually all stocks and commodities including gold sold off in October's market panic. J

Later, foreign governments will order their reserves and sovereign wealth funds to dump UST Bonds in order to bolster their domestic currencies, the great counter-attack.

perhaps they will, but what central banks move any faster than a snails pace on such paradigm shifts in monetary and fiscal policy? Iran still holds billions in US-denominated assets and dollars and tensions are very high between these 2 states, some consider them to be on the brink of war with each other. what would it take then for nations allied with the United States to begin aggressively dumping their US bond holdings? J

THE FRANCHISE OF CENTRAL BANKING HAS FAILED, AND GRAND RATE CUTS CONFIRM THIS NOTION EMPHATICALLY!!! THE COLLECTION OF CONCLUSIONS ADDS UP TO ONE POWERFUL FORECAST: GOLD & SILVER PRICES WILL RISE 10-FOLD IN THE NEXT FEW YEARS. SOON THE CLUTCH WILL BE RELEASED AND THE 10000 RPMS ENGAGE THE ECONOMIC TRANSMISSION TO PRODUCE PRICE SKIDMARKS. Ignore for now the paper price heavy-handed influence, which in my view will suddenly disappear in a volcano of controversy and tumult! The US paper system has falsified the entire global pricing structure. Instead of price discovery, we have been subjected to price controls and tyranny. Next comes the counter-attack.

ok, we will ignore the paper price in gold for now, and wait patiently for the sudden and explosive rise in the gold price.....the same rise you have been speaking of for over 2 years, the closest being a few days above $990 in early 2008. not exactly the stuff of failed exchanges and paper gold arbitrage. J

The US banks are trying to liquefy from this perverse mechanism, using incredibly large volumes of money. In the process, the USFed balance sheet is testing whether it can grow a tree to the sky. The USGovt has contributed to the ugly mountain of rancid paper with bad precedent after bad precedent, from poorly written deals. No private investor in right mind would step forward to help an ailing industrial or financial firm on the absurd block headed terms established by the USGovt. A record setting 25% of high-powered money, as in bank assets, that the USFed has provided, actually sit idle as excess reserves. Hence, money velocity has sharply dropped, typical of a recession. Failure has many symptoms. The US Economy aggregates are falling off a cliff in unison.

Europe has entered a recession, but the US has entered disintegration, while England is close behind with a galloping leap off the Dover Cliffs. Kenneth Clark is a highly respected former conservative Chancellor of the Exchequer (finance minister) from 1993 to 1997 in England. He delivered an urgent warning for a “catastrophic crisis [that will be] far worse than anything that has occurred in my lifetime” for Great Britain. Clarke even slammed Gordon Brown as having received undue credit for his role in attempting to shore up the global economy. He warned policymakers should beware of a “full-blown depression will have on public finances” for its effect. A major error has been committed by both the US & UK. Neither nation has succeeded in passing on lower interest rates to home loans, and repayment plans are not happening in volume.

The elite in both the US & UK are protecting their bankers, but killing the system in the process. Housing prices are careening downward, while job losses mount in large numbers, in both nations. The death of the AngloSphere is nigh, as status of debtor nations comes soon with all its penalties.

like repeated calls for the explosive rise in gold prices to happen any day now for the past year, historians, political scientists, pundits and the like have been calling for the demise of western civilization for over 200 years. it may not be as dominant as it once was, but for now holding money in a US or British bank account is a far safer bet than a Russian, Mexican, or Indian account. why else has the US dollar run up while most other nations currencies and exchanges have crashed as hard as their American counterparts? Who exactly will suddenly take their place when the current deflation is gripping the entire world? J
A simple move to cut rates does nothing to address insolvency of both banks and households. This basic truism is totally lost on clownish inept US & UK economists and bankers. They both built an economy atop a housing bubble, blessed it, and encouraged the debt orgy process, only to see the entire system melt down. This was fully fore casted during the last two years by the Hat Trick Letter.
yes it was. too bad no one made any money following this advice by buying PM's and virtually any precious metal stock. J


We are working toward a nasty climax of historic proportions. Notice that the USTreasury Bill has an artificially high price, with staggering huge volume, which is backwards. This condition defies Mother Economic Nature. Notice that gold has an artificially low price on the paper contracts, with staggering huge demand for physical metal, which is also backwards. This condition defies Mother Economic Nature.

why is this backwards? whom is Mother Economic Nature? and why is the price of either "artificially low"? again, rationale would certainly help to make a case... lets see how this plays out... J
The USTreasurys, given the staggering high volume, should be valued lower. The gold bullion, with its staggering high demand, should be valued higher. Something must break, and break soon. Regard these two anomalies as temporary distress symptoms of ass-backward price mechanisms. The natural tendencies of man, full of human emotions like vengeance and retribution, will soon be unleashed to correct the PHONY HIGH USTBILL PRICE AND PHONY LOW GOLD PRICE.
repeating the prior paragraph but in more epic terms... but still no rationale... there must be some steak to accompany this sizzle... J
All kinds of key evidence points to a COMEX default in December, discussed in the November Gold & Currency Report.
dang!!! I need to purchase his November report to find out just why prices are artificially set and against Economic Mother Nature... and here I thought the grand proclamations would actually have some substance... J

The keys are in the Open Interest, which for gold is collapsing. But the December OI is holding up at relatively high levels. The interpretation from Mr Market, who is a distant cousin of Mother Economic Nature, is “The paper gold market is flawed, and people want no part of it. What physical gold becomes available is being grabbed immediately.”

is this it? "Mr. Market", the distant cousin of Mother Economic Nature? OI is falling in one month but "holding up" in December... what does this imply? well he goes on to suggest "the paper gold market is flawed"... but how? because of a variance in month to month OI? J

Further hints are offered by the Chinese, who announced a stimulus plan worth over $500 billion. They will use their USTBonds before they are trashed.

what hints from the Chinese? yes they announce a stimulus plan, but how exactly will they deploy their US bonds "before they are trashed"? again; baseless speculation... J

Powerful foreign entities are preparing a massive major assault on the US financial corruption, at key spots. All signs seem to point to the gold futures contracts traded at the COMEX and NYMEX, whose prices are routinely suppressed by a high volume of uneconomic short contracts by two to four banks.

The COMEX is a division of the New York Mercantile Exchange. A highly leveraged sequence is soon to be unleashed, one that should bring back thoughts of asymmetric attack. Think small cost of a weapon, heavy damage to costly equipment. Something big comes to the gold market, with big angry players! If successful, severe damage will be done to the USDollar. Their goal is to kill the COMEX gold market, the key location for gold price suppression. Major Russian, Chinese, Arab, and European bankers and billionaires are angry beyond words.

which major global players are mad more than anyone else who's portfolio and net -worth are hemoraging at the moment? on what basis does Jim claim prices are suppressed on the COMEX, and that some sort of event is soon to be revealed on the basis of this foreign anger towards the paper gold market? J
The giant portion of gold vaulted resides in Central Europe. A plan is in place. The key here and now is COMEX gold futures contracts, where many big players are demanding delivery for their December contracts. North American investment houses have also targeting them for delivery demands. With newly energized Russia & China building their gold treasures, with Arabs turning from distrusted Western paper and more toward gold & silver, look for the new players to offer support to the primary thrust attacks. If successful, it will be a defining moment in US financial history. The first delivery notice for the December gold contract is given on November 28.
saying "Arabs" are doing anything is the cultural equivilant of saying "white people" are doing something with their portfolio dollars. no rationale is given to support that any Arab nation is turing away from "western" paper and more towards gold and silver. no Jim seems to prefer culturally grouping together a diverse global ethinicity and claiming they are buying gold and silver... J

Recall that Russians and Arabs each have severe damage done to the crude oil price and petro- revenues. The futures contract games conducted by US price systems and Wall Street tactics used against hedge funds are largely responsible. Russians and Arabs are angry. Their financial markets are in turmoil, their economies are disrupted, their property markets are in disarray. Furthermore, Russians and Arabs own a large amount of acquired gold, whose value is also pushed down by corrupt US paper mechanisms.

again more cultural generalizations, Canadians, Venezuelians, Nigerians, Indonesians and a host of other petro-nations are suffering from soft oil and gas prices along with a sinking realestate market, are they angy too? if so, is there any point is picking on Russians and Arabs as if their collective anger is more vile because its American hedge funds to blame? J
Keep the focus on the JPMorgan garbage can, where the illegal futures contracts are stored, the very same contracts that are never marked to market on their balance sheet. A COMEX blowup reveals their grotesque distortion of market forces, underpinned by gold and USTreasurys. More details are provided in the November Hat Trick Letter report, like the movement by the Chinese and Iranians to vastly increase their gold reserves.
too bad there is no actual proof the Chineese or the Iranians are increasing their gold reserves beyond previously stated annual targets. J

Veteran warhorse Max Keiser, has a video worth watching. See his video (CLICK HERE). He discusses the upcoming COMEX default for the December gold futures contract. He believes that in its wake, the gold price will rise suddenly to $2000 per ounce, perhaps in a single day. The main impetus in his view for the breakdown is pressure exerted by Russia, in his view. He describes their motive. Russia is very angry over the oil price, down 60% from its peak, driven largely by liquidations from Wall Street targeting of hedge funds. Russia regards the paper game to be out of control.

ill have to watch that video to see why the author believes Russians are once again the bad guys despite the rest of the planet also suffering from a dramatic market and commodity collapse, yet magically posses the capacity to send the COMEX into default. J

The USDollar DX index has topped. Conversely, the gold price has bottomed. Each has experienced a clear vivid pronounced reversal off the extreme. Signs point to December as being a battleground month. The moving averages have begun to reverse, a more stable signal. A MACD crossover is near, which would give a billboard notice to technical traders.

i actually agree with Jim on this one. J
Beware that this is the phony paper gold price. Actual large physical gold transactions are conducted at prices in excess of $1000 per ounce. The undue influence of paper price discovery is soon to end. Expect severe discontinuity in the gold price in the next few months, maybe sooner. If Keiser and others are correct, and the assault on the COMEX gold succeeds to liberate its price, a gap up is assured, a big gap up, like a few hundred dollars per ounce. Now is the time to hold firm your gold and silver metal. Sell the children, but do not sell the precious metal.



Like too many gold bug newsletter writers, their consistant calls for extreme and explosive moves in gold for the past year have only weakened any future case for the possibility of such a move. There may just be a $100 single day move, as we have witnessed this year, but even a broken clock is right twice a day.

Without sound support for a COMEX default I suspect we will see the delivery dates come and go with little fan fare of the kind Jim Willie envisions. Yes gold should rise in the current condition, but its rise will be falsely credited to these peverse notions that have yet to bear fruit.

Good luck gold investors, bad advice abounds.


Monday, November 24, 2008

The Perils of gold stocks

Investing is a difficult business.

Investing in gold is evern harder.

Investing in gold stocks is foolhardy.

The bodies of gold stock investors litter the grounds at the gold-bug message boards.

The technical picture is looking better day by day for gold stocks but can one really be certain?

Gold newsletter writers will not help you. They were wrong. Horribly wrong. And they will never admit it.

Use your mind, watch the moving averages, volume and price action. Remember that bear markets take everything down, and that even gold suffers when people panic and move to dollars.