This is When You Should Buy Gold

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What’s wrong with this world?

It seems a lot more uncertain than this time last year.

Terrorism is on the rise.

Geopolitical tensions are out of control.

And the global economy keeps falling apart. Now while this may seem common knowledge to some of us, only now are the institutions starting to wake up to smell the roses. According to CNBC, the International Monetary Fund (IMF) has joined the ‘bad news’ reporting bandwagon:

The global economy risks protracted “sub-par growth,” the International Monetary Fund (IMF) warned on Thursday, as economists continue slicing their forecasts.

“With global economic prospects repeatedly marked down over the last five years, there is a concrete risk of a world economy persistently mired in sub-par growth, with unacceptably high levels of poverty and unemployment,” the IMF said in a report out ahead of the G-20 leaders’ summit in Turkey on Sunday.

In other words, things are so bad that even the world’s worst forecaster can’t keep pretending everything’s alright.

To be honest, I’m not sure how to take this forecast. But I’m going to interpret it as ‘bad news is terrible news’.

See, the IMF’s been seriously wrong for years. For example, in September 2010, the IMF forecasted Greek debt to reach 144% of GDP by 2012–13. It also added that this rate would drop to 111% by 2020.

Now, while it’s not 2020, Greek debt stands at 175.1% of GDP. As it stands, I’m sure you can agree that there’s little hope of ever seeing a smaller number…

That said, if you believe the IMF, the chicken will indeed come home to roost. Here’s another beauty from the IMF in April — a time marking the height of Greece’s debt problems. According to the Greek Reporter:

The IMF is expecting Greek GDP to grow from 0.8% in 2014 to 2.5% in 2015 and to 3.7% in 2016, with growth rate rising to 4.0% in the fourth quarter of 2015, from 1.3% in the corresponding period last year.

The moral of the story: don’t be surprised if the IMF is wrong…yet again.

Don’t punt on a Greek comeback

If you haven’t heard, Greece’s economic growth fell at an annualised rate of 0.5% last quarter. It also revised down its second quarter growth figures. The confirmed growth rate was 0.4% — nearly half of the initial 0.9% reported.

This downward trend is set in motion.

The reality is, even though the IMF would never admit it, the Greek economy has been in a depression for years. And as the economy continues to crash and burn, businesses are either shutting their doors or leaving. The majority of Greeks have no choice but to look for work in other counties.

Unfortunately, there’s little chance of hope or change on the horizon. Greece’s left wing government, Syriza, abandoned its earlier promises to scrap austerity. Instead, its politicians stood up for the bond holders.

Indeed, since reaching an agreement with lenders over a new bailout deal in July, Greece has imposed drastic new tax hikes. The latest austerity measures also include cutting pensions and abolishing tax breaks.

Not surprisingly, their people aren’t happy. And last week, their farmers showed that they’ve had enough. According to Ekathimerini,

Greek farmers protesting over planned tax and pension reforms demanded by the country’s bailout creditors have clashed outside Parliament with police, who used tear gas to disperse them.

Up to 4,000 farmers from various parts of Greece took part in Wednesday’s protest in central Athens. The clashes broke out when some of the protesters threw bitter oranges that grow on trees around parliament at riot police guarding the building.

It’s the first major protest by farmers in several years. If austerity continues — a near certainty — it won’t be the last.

Austerity doesn’t work

This is because austerity — raising taxes and increasing burdensome regulation — doesn’t work. It kills economic growth, leading to rising unemployment and falling real incomes. In effect, people’s savings and lifestyles get squeezed in every possible way.

Eventually people will run out of savings. With debt up to their eyeballs and no wealth to their names, they’ll lose all hope.

And when people have nothing to lose, they do crazy things. If history is a good guide, it starts with social unrest and ends with revolution.

Nonetheless, braindead politicians worldwide are demanding ‘more austerity’! European politicians are leading the way.

Fearing another Weimar Germany, European politicians are worried about hyperinflation. Its austerity or the highway across continental Europe. While this plays out, countries have no problem borrowing more money.

This a recipe for disaster…

But politicians will never admit that they’re wrong. To restore order and growth, they’ll need to axe taxes at a bare minimum. Yet, as the economy readjusts towards growth, this would mean less money to spend in the near term. This is something politicians could never imagine.

But people can imagine it…

The good times for politicians are over

Looking around the world, many people have simply had enough with government. The public’s perception is changing drastically.

People are sick of the borrowing.

They’re sick and tired of politicians breaking promises, never balancing a budget, and taxing them to death.

It’s no surprise that more anti-austerity parties are popping up across Europe. Even in Australia, we’ve had five Prime Ministers in five years! Liberal and Labor, they’re both the same — them first, us last.

Nonetheless, while it’s crazy, the majority still believe in government. In my view, this is for two reasons:

  1. Terrorism is distracting the people from government;
  2. Many pensioners still rely on government. They have their whole lives, so why change now?

But don’t worry. This attitude towards government will soon change.

Across social media, people are starting to blame the rise of terrorism on idiotic Western government foreign policy. Pensioners are now struggling to live off their savings.

When the majority start losing faith in government, you’ll know. Gold will start moving the other way — it will go higher!

When the majority loses faith in government, gold will become king.

At the moment, while confidence remains in government, it’s not a good time to buy gold. Yes, it will jump up from time to time. But there’s nothing to get excited about. Technically, gold still remains in a long term bear market. It should hit US$931 per ounce or lower before the bear market ends.

I’m following this story closely in Resource Speculator. If you want to know more about the best time to buy gold, become a reader today by clicking here.


Jason Stevenson,

Resources Analyst, Resource Speculator

Ed Note:The above article was first published in Money Morning.

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