good afternoon welcome to capital account i'm more in leicester here in washington d.c. these are your headlines for thursday october fourth two thousand and twelve gold hit an eleven month high today allegedly bolstered by signs the e.c.b. will keep its borrowing costs low and stands ready to buy bonds now as long as central banks continue to print and maintain negative real interest rates should investors consider owning gold well we're seeing that question answered with a yes from the darkest places we'll talk about the impact however you may have also seen this story all over the blogosphere recently about a new york merchant. bigger counterfeit gold bores you go your room so we drilled

into several of his gold bars worth for one hundred thousand dollars and saw a great tungsten. does faith and gold really represent a tail risk for buying physical gold or is this a one off they will speak to mark o'beirne of the international gold bullion dealer gold core and though we tend to favor market solutions for most things are market forces actually doing a disservice to democracy in the case of the presidential debate coverage we'll talk about in loose change let's get to today's capital account. some of the headlines today range from gold rises on e.c.b.

rate decision beforehand to gold prices were higher as the e.c.b. president mario draghi said the e.c.b. was ready to buy government bonds is that what he's been doing all along we're going to look at what you think of what the animal spirits which ones are driving markets at any given moment one often heard argument is that as central banks around the world print gold rises as people hedge against the sure to be inflation and currency debasement and we have precious metals investors on the show who advocate owning gold for reasons such as this and we've certainly seen the gold prices rise over the last twelve years but still a very small percent of global investments are allocated to gold it hasn't gone main stream however you can take a look at the prices and how they've risen there over the last twelve years despite this gold is not a mainstream investment but look at this a report from him in october that has been making the blogosphere rounds all quote from it they say we believe investors should consider allocating gold and other

precious metals to a diversified investment portfolio the supply of gold is constrained and we see demand increasing consistent with global economic growth on a per capita basis regarding inflation in particular we feel that the federal reserve's decision to begin a third round of quantitative easing makes cool even more attractive pimco was advocating investors buying gold so could this mean gold is going to move mainstream and in an era of money printing one of the appeals of gold is that it is no one else's liability it's a hard asset but this story came out last month and really shook up the blogosphere . the jewelry stores on forty seventh street and fifth avenue the important trust between merchants has been violently. gold bore costing nearly eighteen thousand dollars turns out to be a counterfeit it's filled with tungsten which weighs nearly the same as gold it would cost just over a dollar knows all of that gold is in

a very good investment so is this a real risk we spoke about all of this earlier with mark o'byrne he's founder and executive director of the international boy in dealer gold core we spoke first about the role of gold one conventional wisdom i would i would consider it is that gold is a hedge against inflation there's the question of what degree of inflation if we bring up a chart of gold prices from the one nine hundred seventy s. to today you can see that gold doesn't really function as a hedge against moderate inflation i mean the gold price went down during the ninety's we saw moderate inflation where it seems that gold comes in as a hedge is against massive inflation or massive credit stress as in some kind of dislocating deflation as we saw during the seventy's and kind of as we see now with this risk on risk off concern where people are worried about massive inflation or massive deflation so how do you see gold as a hedge. well you know i think you summed it up

fairly well there it's not a hedge against moderate inflation per se particular of moderate inflation benign economic growth and reasonably good economic growth levels and that was seen also very clearly in the one nine hundred ninety s. . where gold tends to do well is when you have deflation when you have. when you have very low inflation and of sleep in the worst case scenario and hyperinflation and so deflation also we saw that in the nineteen thirties and then though after a while see crushing one hundred twenty nine. there was a massive deflation and stock markets came off very very sharply out of steps property markets and the dollar was devalued in fact by seventy percent and gold was revalued by seventy percent from roughly twenty dollars per ounce to thirty five dollars per ounce and that was you know the one the most. deflation events in the history of my government and then again in the last five years with the so-called credit crunch and bear stearns and lehman brothers and those quite

significant deep periods for a very short period of time particularly it was more as a classical asian that we saw the price of food and energy didn't come down the whole lot of main qualities to calm down a bit for a period of time but again gold is what it was carl ages which equities in the very short term gold based a lot sooner than equities and then it started rising sooner next week as well so again show the inverse correlation which risk assets such as equities and bonds and then the stagflation the nineteen seventies when we saw the last home market in gold we had double digit inflation over ten percent for a number of years on the gold price rose from thirty five dollars to eight hundred fifty dollars in just nine years so you're right it's basically it's a hedge against. deflation because the gold is the only asset class that kind of go bankrupt and like every single company and every single government in the world there is a counter party risk with these paper assets such as bonds and i q's. gold is no counterparty risk if you own it in the safest way possible so that's why i say

hedge against inflation and inflation it's because gold is so foreign to economics is quite a simple thing and sometimes it gets. convoluted and complicated by economists . and people can understand the economics of this most simple term is about supply and demand ok and gold is extremely extremely rare i would say one person in a hundred million people know how much gold is in the world and the fact is that all the gold in the world if you made it into wouldn't join into gold bar made a point nine nine nine nine pure so twenty four carat gold would join bar would basically fish in the center court at wimbledon just wrote here all right oh it's extremely extremely rare that the money supply. of the service is pumped in the federal reserve a loan that's printed two point three trillion dollars just in that in the first remember and i want to get into it to dive into a few baskets you're talking about because you touched on

a number of things i want to get to the for this interview ends in five minutes because that's the time that we have so first if you look at total credit market debt there is a ton of credit market and if there's a major deal leveraging event as we just discussed perhaps gold would perform well but also gold you would expect downward pressure on the gold price as people sold off their assets in order to pay down the debt so what how would you expect gold to perform in a major deal leveraging and do you see any kind of major deal leveraging event that could potentially be on the horizon. i do actually think it's quite possible especially given the facts which i had learned there there is a possibility of a lehman style moment. of huge volatility marketplaces and sharp falls in the markets and stock markets in that scenario then there is to potential for gold to fall as well and have another correction in what we believe the. secular bull markets put it we do believe again it would be

a correction would in a secular bull market go in that scenario would most likely for what would happen is as you said the more speculative players would basically they would be leverage so people on the comics who are trading paper futures leverage fashion hedge funds and more speculative players prop that sort of buying so that they would basically go to the safety of so-called safety or relative safety of cash or u.s. treasuries and that would seem to go price for fall in the short term but then the sort of the more fundamental of them and then it would actually increase the amount that would create the floor on the price and then the price rickover quicker i would think than the stock market and the bond markets would recover that scenario ok got it so then when any time in there be a time to buy because you believe gold is still in a secular bull market. yeah ok again by i mean the two hundred day moving average the one hundred day moving average has been good places to buy in

the last ten years and i think that will continue to be the case with the election coming up in early november i do. i think i don't think actually october is normally quite a volatile month and we've had a number of crashes in october but i think with the action group of in early november i don't see any great dislocation until the election ok but who knows i am certain a time out there i'm not sober traditionally so it was actually quite a negative month for gold ok so if you are trying to time things we tend to tell people not to trying times but if you are going to try to time it possibly that way to the start of november ok so some seasonal issues at play there historically i want to ask about the supply because you mentioned gold is rare and there is this story there is blowing up on the blogosphere to an extent a report of fake gold that a merchant in new york was sold that was filled with tungsten he found that out after he heard from a friend that was a merchant that they had received a gold bar that when they drilled into with salt and with tungsten now this i think incites some anxieties in people especially people that think of gold physical gold

as something they can hold outside of the financial system in unallocated vault maybe even in their garage so when you are a bullion dealer what is your experience with this is this a risk that people actually need to be concerned about or is this a one off freak thing. right now it's a one off for eating it's extremely extremely rare and i mean we're in the industry at the coalface and we've never come across such nor of any counterparts that we deal with so. i don't even know what to say it is literally a handful of things four or five. hours have been found there ten times sparse. so i mean the gold marketplace i mean this every year the you know hundreds of thousands of bars and coins produced in millions in different formats one ounce ten ounce. four hundred ounce bars basically been a handful of ten and spars fans so that's what they say you know it's time you know

as the price of gold goes up the likely to be forgeries you know and so what you have to do. protect yourself as a sort of deal with the referee billion dollars and i suppose deal with people who are buying more rather from the second the marketplace i'm from the public they're buying more directly from the source so if you're buying directly from a boy the dude who buys directly from a government mint or from a refinery then you lessen that risk ok so mr byrne before we go i just i have to ask you this since i have to ask you this question if you get cut off please forgive me there when i was about to close but i have to ask pimco is now recommending that people buy gold is this could this be a turning point in mainstream allocations to precious metals. here with the bill gross to. talk of ring of foreign bonds is that i think it is a huge development and it's gradually moving into mainstream but it's still a fringe investment and it's owned by a tiny minority of people on any allocation to gold whatsoever and only

a tiny tiny percentage of the amount people have an allocation to physical gold would be an allocated for much or have taken delivery into the garden already stored as you suggest so it's going from the gradually gradually gradually and it will go into the mainstream i think the next three five seven years. there you have it a prediction and still ahead a paradigm shift in the gold market brought on by central banks and it doesn't involve money printing we'll hear what it is from mark o'byrne after the break but first your closing market numbers. my parents really truly honestly believe that what had happened was as

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welcome back we're talking about precious metals and this statement struck us from pimco october note to go back to it for a moment another way to think about the relative value of gold is to consider what a return to the gold standard might look like given that there are one hundred fifty five thousand metric tons of gold above ground this equals an approximate price of twenty five hundred dollars per ounce if all the world's reserves were to be backed by the entire stock of above ground physical gold now pimco uses this to indicate that the gold valuations aren't as high as their nominal price would suggest but is it just me or is it just bizarre to see pimco talking about a return to a gold standard now regardless of whether central banks are considering

a return to some kind of a gold standard they are becoming net buyers of the yellow metal and it could be proof that they see it as a real store of value i spoke to gold core founder mark o'byrne on the impact take a look portably around this time last year european central banks became a net buyer of gold we've seen emerging market central banks loading up on gold although there is some indication that perhaps in august major players stay more on the sidelines perhaps because gold prices rose so i'm curious what impact this has central bank buying on gold prices has there been a floor created in other words a price that central banks will always step in to buy. yeah i think that is the increased need to believe in the marketplace more astute analysts because it is a paradigm shift for banks were not salaries for nearly forty years and they've gone from being net sellers in the marketplace to net buyers. so far in the first

half of this year alone they've bought some two hundred fifty four tones and that's just official persons that we are aware of of countries that are reporting to the i.m.f. . most likely some on official purchases going on as well from the likes of china and the world gold council believe that by the end of year five hundred tons will be bought by central banks this year so it's a huge shift and it's quite a sustainable shift as well because while the total amounts seem quite a lot dollar terms are euro terms of sterling terms they're not actually that much in especially when compared to the amount of money that's been created in the world today. so yeah it is it's it's always dangerous sort of a paradigm shift but it is it's a fundamental change in the marketplace that is very very important and i think it's still yet to be fully appreciated interesting is it just i don't know if there's any number you've heard is there any kind of number that you know of that you think is a floor in terms of gold prices with this paradigm shift. well it's hard to know

and it's always very dangerous to get into predictions regarding floors or or even predictions about where the price will go but it does seem just looking at. the buying patterns and even a bit of rudimentary technical analysis that around the fifteen hundred to sixteen hundred. level to do seem to be very strong the bombs. at that level. and terms are going to manage just one facet i mean there's broad based global demand the central bank amount is quite important because it's gone from that sellers and buyers but it is just one factor as well and these other factors whether it be chinese demand obviously the fact that chinese people couldn't value gold from the one nine hundred fifty to two thousand and three because chairman bond go to ship that's another fundamental fact that it's not a piece about the wider marketplace i think those two factors are actually very very important i think the chinese buyers in time i think they will become a little bit like the indian buyers who are quite price sensitive and they will

tend to buy on dips and i think they will fundamentally smart to support this marketplace in the coming years that's interesting i want to continue on that because the broader trend you're talking about is that these countries have been buying gold but recently we've seen a significant slowdown in demand from china and from india perhaps because their economies have weakened so if their economies continue to weaken is this could you see this major driver of demand not being there to the extent that perhaps you or others are expecting. no i wouldn't think so and there is some speculation that that may transpire but i wouldn't think that is the case because if their economy slowed down and you're seeing that quite significantly in china already their economy has slowed down quite a bit already their stock market has come off very very sharply in recent months and indeed the property markets in different cities around china are beginning to fall so i think that's not of the chinese people they have an experience of

hyperinflation within the lifetime of many chinese people i think it's one hundred forty nine that hyperinflation so they're quite a bit a little like people in india they're quite distressing of paper currencies and therefore it's our economy slowed down quite significantly it would mean that you would see less. demand for sources. basically jewelry and fashions houses and all the rest would i think i would see increased bar the mound and coin demand because of economic uncertainties in their domestic economies and the policy response to a slowdown in economic growth in china india may well be similar to apologise policy response we see in the western world which is a loose monetary policy it's absolutely heard of in modern times these ultra loose monetary policies and the basic currency debasement are set to continue for the foreseeable future both in the western world and indeed in they may be seen in these developing markets and there you have

a goal roundup from mark berndt founder and executive director of gold core. all right let's wrap up with loose change let's talk about a market angle on the market for presidential debates because more than fifty eight million people tuned in for the first presidential debate it was last night as according to t.v. newser fox news was the most watched cable news network beat out both m s n b c and c.n.n. and the broadcast news networks now the cable news networks also brought in millions of viewers for their pre and post debate analysis let's just look at a round up. it was

a pretty seventy two debate i don't know that we learned a lot new those of us who've been watching this so closely in the first thirty to forty minutes seem to make some significant points president obama in that same time didn't seem as energetic and seemed defensive at points it does remind you that the last debate that mitt romney had was seven months ago in the last debate that barack obama had was was four years ago and the people who he's used to sparring with our reporters who are asking him questions from a seated position as he stands in a letter to the president actually spoke for a little more than four minutes more than mitt romney spoke thirty two minutes a few seconds for the president thirty eight minutes and thirty two seconds for mitt romney this is a pretty good night to how did he prepare how do you how do the how the prisoner proof we got he was an interesting dynamic to see mitt romney looking mostly over at president obama when he was making his points and president obama choosing to look mostly at jim lehrer or looking down. telling news that is breaking news where there i gaze was directed so the question that arises is what i will

hand over to me to dmitri to pick up on which is what you were talking earlier to. day which is you don't believe that the market demand is conducive to democracy when it comes to the this election coverage what i was saying we are disagreeing about whether this is in fact the case that they actually do focus on the horse race over the substance but that aside for a second what i'm saying is that the bottom fifty percent of the country is not very profitable for advertisers are they don't really care about them that much they'd rather them just go away there's more more and more demographics so i mean the only people that long are saying is who really cares about the horse race only people that have the luxury to watch politics as a sport would actually and not care about the outcome focused on what about romney do with his hair that they did he have a standard double did he get punched in the face before he went on television the

warm self up was he dug his head in the ice box i mean who else cares about that but people that have the loose let me play the devil's advocate and i have a feeling our audience is going to agree with you will hard at least so folks be nice to me because i'm just playing the democratic so you got an opportunity to make your kids dimitri ok all of those things ok what how a candidate prepares how they consider that what they do what their character is like that reflects on their character don't you think it's important to voters to know the character of the voting for somebody i think that's like for example i use this example this thing before we're talking it's like it's like focusing on how do you prep for the s.a.t. as opposed to focusing on what is this a t.v. show about your intelligence well we're not you're ok yeah but i don't have any teeth i don't care if they're doing what i want thing is i don't care how they're preparing to trick me i don't care about how good they are being slick salesman i want to know what they're selling me how they figured out how to sell me a dupe me ok i mean well dmitri you before have argued that something like the s.

eighteen standardized tests are done they don't accurately reflect intelligence or capability so isn't it important. actually know how a student would prepare for the s.a.t.'s and would not argue billy's tell more about their character or their drive or their ambition or their focus to know how they were paired for that task versus necessarily how they performed on it no because the song because the point of this is not to know how. good of a debate of iran news there's opposed to figure out it's supposed to make a decision about the president the country you're not you're not supposed to you know because you know the bridge the better of the countries if this was the one you care about it all but if this is the finals of the of like of america's top two debaters then yeah this is the perfect perfect i actually don't that being the top debate is about who is actually going to do you do you watch post election coverage i was posed to make you or you were playing close to your playing tetris after the debate so how can you accurately zero most of the when you know your words because there was analysis of policy issues afterwards especially on m.s.n.

we see where there are a lot of talk that with how obama performs they were trying to make up for hit with all of the policy issues that they wished that he had brought has been a little know it was you must have been playing that video no because it was all stuff like that and you know what the video was for t.v. to make your point so this is all focus on the war going up so that if you want to your point is some sit on. your mind is the free market perspective because i don't agree with you but anyway. let's do another story because it's been a rough few months for facebook but they have finally reached a billion users we all know that lots of people spend too much time on the social media site not because i'm not on their elbow now capital account is and that their emotions depend people users on what happens in the virtual world but mit has developed a jacket that further proves the point which will associate virtual likes with a real hug check it out.

so. ok this is but that i get a friend people get off of facebook and make one that's what i'm saying i think if you get one of those bursts and literally clear himself to death with the like but what if you just really mean old enough he needs friends and he needs hugs and he should join one of his co clubs jimi very dimitri heard about a couple clubs but you were going to do that you have to give me a little bit of a something if mitt romney won last night and if fox news got the most viewers which means that mitt romney basically won twice then i don't think he needs the hugs right now i think of anybody in the race needs a hug that would be obama but we've got to go i've got to leave it there for to get the last word here is all that's all we have time for thank you so much for watching have a great night and in the mean time until tomorrow you can follow me on twitter and lauren list are you going to like us on facebook you tube dot com or no facebook dot com slash capital account watch is the new to hulu thank you for watching how

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