Precious Metals Continue to Rise as the IMF Downgrades

Yesterday we brought you news of the technical strength we’ve been seeing recently in the precious metals market and noted in particular gold’s 50-day moving average breach to the upside. Last night we continued to see growing momentum in gold and silver pricing with silver hitting an approximate 3 month high and gold closing near the highs of the US session. Trade overnight produced improvements of US$9.93 for gold at US$1,146.60 and $0.162 for silver at US$15.87. 

There are many issues that are likely contributing to this recent price support with some reports focusing on the impacts of Russia’s involvement in Syria for example. Let’s look however at another piece of news from overnight which is the continuation of a longer trend; that being another IMF growth forecast downgrade. 

According to the IMF release "global growth for 2015 is projected at 3.1 percent, 0.3 percentage points lower than in 2014, and 0.2 percentage points below the forecasts in the July 2015 World Economic Outlook (WEO) Update”. Importantly, emerging market performance and activity in developing economies is now forecast to slow for the 5^th consecutive year. Unsurprisingly, the bulk of the projection cuts were seen in the EM and oil exporting nations yet the real point to be observed here is the trend that we’ve spoken about in recent articles. Specifically, at 3.1% we are now at the lowest rate since the GFC as illustrated below.

According to the IMF release, the primary motivation for the forecast cut is the performance of China with additional issues including political uncertainty, lower commodity prices, market volatility and inconsistent FOMC guidance. The IMF additionally suggested that advanced economies ramp up infrastructure investment to bolster growth.

A declining outlook for global growth makes the individual investment landscape difficult as the companies that are to produce investment returns struggle in such an infertile environment. The recent supply shortages in precious metals and the technical price analysis of late indicates that gold and silver are increasing in popularity as focus continues to shift from the return on capital to the return of capital.