IMF Global Growth Downgrade Fails To Lift Gold Prices

(Kitco News) - Gold prices are not seeing much of a boost following the International Monetary Fund’s (IMF) downgrading of its global growth forecasts for 2016.

In its latest report, the IMF said it expects worldwide growth to expand 3.1% this year and 3.4% in 2017; both estimates were cut 0.1% from the previous outlook.

The biggest influence on the fund’s downgrade was the approval of the Brexit vote last month. IMF  chief economist Maurice Obstfeld said in the report that “Brexit has thrown a spanner in the works," Obstfeld said”

The gold market has been relatively quiet Tuesday as it trades in a relatively tight range. August Comex gold futures last traded at $1,331.3 an ounce, up $2 an ounce on the day.

Gold’s lackluster reaction to the global downgrade could be the result that although Brexit has created new uncertainty in global markets, the IMF says that it expects the fallout to be mostly limited to Britain and Europe.

However he also warned, ““more negative outcomes are a distinct possibility.” “The real effects of Brexit will play out gradually over time, adding elements of economic and political uncertainty,” said Obstfeld. “This overlay of extra uncertainty, in turn, may open the door to an amplified response of financial markets to negative shocks.”

As expected, Britain will face the biggest challenges because of the Brexit vote as the IMF down grade’s the nation’s growth to 1.7%, down 0.2% from the previous forecast. In 2017 growth is expected to fall 1.3%, down 0.9% from the April forecast.

“Had it not been for Brexit, the IMF was prepared to leave its outlook for this year broadly unchanged as better-than-expected euro area performance offset disappointing U.S. first-quarter growth,” the report said.

For now the IMF is leaving U.S. growth prospects unchanged at 2.2%.

Although gold futures aren’t seeing much impact, there is some movement in currency markets, with gold prices seeing stronger broad-based gains.

The British pound is the weakest performer as Kitco.com gold currency charts show the yellow metal is up more than 1.28% on day. Gold is also near its session highs in euro terms, up 0.55% on the day.

Courtesy: Kitco News