Panicked International Monetary Fund Sparks Bonfire of Gold Buying
From Peter Reagan at Birch Gold Group
This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: the IMF’s panicky “buy gold” warning, the surge past $2,000/oz. and a frank assessment of the Texas gold-backed money proposal.
The IMF’s Global Stability Report is a gold investor’s dream
The International Monetary Fund (IMF)’s latest Global Financial Stability Report released on April 11, is basically an advertisement for owning precious metals. IMF economists say that the fight against inflation has exposed “fault lines” in the financial system. The banking crisis is a warning:
harbinger of more systemic stress that will test the resilience of the global financial system—a canary in the coal mine—or simply the isolated manifestation of challenges from tighter monetary and financial conditions after more than a decade of ample liquidity.
There is major financial stress ahead. And this is not a “straw that broke the camel’s back” situation, no – it’s the camel being crushed under a five-ton bale of hay. For example:
…leveraged loans and private credit markets have slowed.
Concerns have also been growing about conditions in commercial real estate markets, which are heavily dependent on smaller banks.
In addition to banking sector turmoil and fragile investor confidence, macro-financial volatility could also be exacerbated by geopolitical fragmentation…
The IMF makes a point of differentiating what can be called the coming crisis from previous financial crises. It isn’t clear whether that distinction makes this one better or worse.
Don’t get the wrong idea – the IMF isn’t just looking at the global economy from the highest, most abstract level. This time is a little bit different thanks to social media:
Word of deposit withdrawals spread globally at lightning speed, potentially signaling that future banking stress may spread faster and be less predictable.
Households are now bearing the burden of the last two decades of debt-fueled spending. Savings levels are dropping, pandemic-era “fiscal support” has dried up and household debt is rising to meet higher prices.
Taken in its entirety, the report shows just how fragile the global financial system has become. Despite its bland, committee-revised language, you can almost feel the fear. If Stephen King was a central banker, this is the story he would’ve written instead of It or The Shining.
Global growth has been downgraded to 2.7% this year. It’s a steep fall from two years ago, when it was at 6.0%. And, as you probably recall, it wasn’t a particularly prosperous year. This is now the lowest growth figure since 2001 outside of instances where there was an officially declared global crisis. In other words, there is probably an undeclared crisis.
For example, Michael Barr, Vice Chair for Supervision of the Board of Governors of the Federal Reserve System, said the banking sector is “sound and resilient” recently. The only time central bankers start talking about stability is when they’re trying to triage an unfolding crisis.
We’ve seen exactly what gold does in times like these. There’s a reason the world sees gold as a safe haven – everyone from central banks to everyday people need something they can trust and rely on when nothing seems trustworthy or reliable.
The IMF just published the best possible argument for gold investment. I hope people will listen before it’s too late.
How and when gold could skyrocket past $2,000
Weeks ago, gold was stuck around $1,650 and investors weren’t satisfied. Now, gold is stuck around $2,000 and investors still aren’t satisfied. The difficulty of this resistance level has been predicted by most pundits. Even though gold is now just barely above it, it fell multiple times from targets such as $2,030.
That is what some commentators are focusing on, saying that gold isn’t ready to break above $2,000 despite ending Friday’s trading session higher. Others present extremely analytical reasons why gold is in a supercycle that has to culminate in a $2,700 target.
The latter analysis, done by Gary Wagner, is a two piece that’s basically a more readable version of an academic study of the price of gold. Wagner goes into the depths of why various data indicates gold is in the eighth and final stage of a supercycle. What happens after the cycle? Who knows.
Wagner’s timeline has gold starting the supercycle in 1973, a fancy way of saying gold soared when President Nixon defaulted on the dollar’s gold peg. The takeaway is that this phase of the supercycle will go on for years, which makes sense as $2,700 is a lofty valuation from current targets. Yet it also comes off as a very realistic one.
In the near-term, there is a surprising amount of dissatisfaction over gold’s current pricing. It’s as if some analysts want the metal to reach the $2,070 all-time high already. However, analyses such as Wagner’s provide a compelling argument for something that everyone can feel. Wealth is going out the window, and logically, gold has to go up in value.
Texas wants gold-backed money, but is going about it in a strange way
Normally, any time we hear about the introduction of gold into the monetary system, we’re enthusiastic. However, Texas’s latest proposal to reinvent sound money is… not very sound.
Two recent bills propose the creation of a digital currency that would be fully backed by gold and easily transferrable. It would supposedly be redeemable for real physical gold, and is actually being cited as a hedge against central bank digital currency (CBDC) totalitarianism. That’s right, folks: senator Bryan Hughes and representative Mark Dorazio believe that the way to fight the menace of a federal digital dollar is to introduce their own digital dollar, but backed by gold.
A fellow party member has even proposed that the U.S. outlaws the digital dollar idea to avoid becoming China. Overall, CBDCs are an increasingly tough sell, a “solution” looking for a problem to solve. While not too long ago you might have struggled to find a negative mainstream take on CBDCs, these days, it’s easy to find an authoritative perspective on their non-financial risks. Brandon Smith called them “the ultimate tool of financial oppression,” and I find it very difficult to disagree.
The Texan digital gold dollar idea seems to have come from the same economic minds that locked down the economy, printed trillions of dollars and then Built Back Better. It’s a little short on reason. We’ve had gold and silver as the original currency, with nickels in-between.
The U.S. dollar, for all that it’s propped up to be, was only ever little more than a glorified banknote. That applies to current times of free-floating money, but it applied just as much in the 1960s, or the turn of the century when the gold standard was much more rigid. The U.S. dollar, in the form of the greenback note, was a more convenient method of transporting and transacting in gold and silver. Throughout history, sound money like gold and silver is always replaced by receipts or bearer bonds or another, easier to carry form of money.
Just as important, it was almost as private as gold itself, which is why there was demand for it. A digital gold-backed currency will eliminate privacy, one of gold’s primary selling points. It will also eliminate another key selling point in decentralization. Furthermore, holders would be entirely dependent on the promise that the Texan government has enough gold bullion on hand for redemption. It’s this same dependence that is causing the current banking crisis of liquidity.
So what can we learn from this dubious proposal? Well, it seems like the U.S. dollar is unsalvageable, so much so that individual states are already making their own Plan Bs.
And, as ever, gold is the best Plan B.2023, Featured, gold as investment, gold as money, imf