Gold Firms as IMF Cuts its Global Growth Forecasts

Despite the spike to a multi-month high by the U.S. Dollar against a basket of currencies, August Comex Gold futures remained relatively firm early Wednesday. However, four days of sideways trading suggests the precious metal’s recent rally may be losing some steam given recent stronger-than-expected U.S. economic reports, increased expectations of a Fed rate hike and expectations of additional stimulus by the Bank of Japan and the Bank of England, which have been driving up demand for higher-yielding assets.
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After rallying to $1338.80 shortly after the opening, the market settled back to $1332.00, down $0.30 or -0.02%. Spot gold was up 0.10 percent at $1332.81 an ounce. It closed at $1331.73 on Tuesday.

Currently gold is trading at 1326.79 down 5.47$ or 0.41%.

Another sign of a weakening market was gold’s inability to get a boost from weaker equities this week. However, the biggest reason prices have been capped this week is the strength in the U.S. Dollar.

On Tuesday, the Greenback soared after the release of better-than-expected U.S. housing data increased the probability of a U.S. Federal Reserve rate hike later this year. The Fed Funds indicator suggests that investors have increased the chances of a rate hike from 20% just a few weeks ago to 50%.

There was some good news for bullish longer-term gold traders, however. This may be the main reason for the orderly correction that is currently taking place. The International Monetary Fund cut its global growth forecasts for the next two years on Tuesday, citing uncertainty over Britain’s looming exit from the European Union.

The gold rally stalled recently as global risk appetite recovered from the Brexit shock in late June as central banks pledged to provide their financial markets with as much liquidity as needed. The IMF forecast, however, suggests that this stimulus may not be enough to maintain current growth patterns. Stocks may not be able to maintain their strong upside bias which could drive investors back into the gold market.

Gold hasn’t been the only casualty of the recent rapid rise in equity markets and the strong U.S. Dollar. September Comex Silver prices have also dropped dramatically since rallying to a multi-year high earlier in the month. Speculators have been booking profits since the July 5 top at $21.23. Earlier today, the market traded nearly flat at $19.80, down $0.037 or -0.20%.