World Bank Cuts Global Forecasts – Gold Becomes Attractive

Global growth concerns continue to weigh on markets as equity futures and copper tank.

Bullion.Directory precious metals analysis 14 January, 2015
By Christopher Lemieux
Senior Analyst at Bullion.Directory; Senior FX and Commodities Analyst at FX Analytics

Things are not looking quite as good as economists had hoped for, as once again, global growth has been slashed. The World Bank forecasts 2015’s growth to come in at three percent, down from the 3.4 percent originally predicted.

The World Bank pointed to the 17-nation Euro-bloc and Japan as a focal point for slow growth (wasn’t tripling-down on QE supposed to help Japan?). Some large emerging economies have been added to the mix, too.

Global growth has been absent given the astronomically lax monetary policies induced by major central banks.

The European Central Bank (ECB) is expected to announce some form of quantitative easing during their policy meeting on January 22, while many believe the ECB will not have enough ammo to fight off deflation and spark growth.

Amid elusive growth and inflation, central banks are feeling that their feet are getting closer to the fire. Even as unconventional tools have failed to ignite sustainable growth, in the US or otherwise, central banks are trying to bark loader than they can bite in order to control the market.

The US dollar saw unprecedented gains in the last half of 2014 on the assumption the Federal Reserve will hike the Fed funds rate for the first time since 2006 – nearly a decade.

Near a nine-year high, the dollar has stalled as traders deem a hike in interest rates by mid-2015 of 25 bps is unlikely.

Unfortunately, a 50 bps is being priced in by Christmas. This is not what the Fed wants. A half-percent may not seem like much, but it is still uncertain how equities and other risk assets would take a larger than expected rate increase.

Fed Presidents James Bullard and Charles Evans support the reckless zero-interest rate policy (ZIRP) saying it would be “irresponsible” to tighten monetary policy too soon. While, Minneapolis Fed President Narayana Kocherlakota said tightening monetary policy would be unfavorable to the jobs market.

Crude and copper took a hit in early-Asian trading on the growth cut news.

West Texas Intermediate (WTI) fell back below $45 per barrel after fighting to scratch back from a six-year low. Copper, considered an economic growth indicator, seen prices comparable to 2008. Copper opened trade this evening by gaping lower by over five percent. Copper has lost almost 30 percent since 2014.

However, gold has seen demand in 2015.

With slow growth and low inflation, it is inevitable that central banks with continue with quantitative easing until the whole financial system implodes because their is no other alternative. Gold is also becoming more attractive as bond yields continue to sink lower.

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