Gold remains firm above $1200 after rebounding smartly on Monday from in front of the key 1182.10/1179.83 support level. The yellow metal is garnering support from the IMF’s latest negative revisions to global growth prospects.
The IMF now expects global economic growth of 3.3% in 2014, down from their previous estimate of 3.7%. Forecasted growth for the EU now stands at a scant +0.8%, down from +1.1%. The growth outlook for 2015 was revised to +1.3%, versus 1.5% previously. The recession risk for the EU has doubled to a 40% likelihood.
The IMF slashed the Japanese outlook to +0.9% in 2014 and 0.8% in 2015. That’s down from +1.6% and 1.0% that were forecasted in July.
The IMF still sees relatively better growth prospects for the U.S., upping their 2014 forecast to +2.2%. One might expect U.S. yields and the dollar to be rallying based on heightened policy divergence expectations, but that is not the case. Perhaps that meme is falling apart as investors realize that if Europe falls into recession, and Japan teeters on the brink, prospects for the U.S. dim significantly as well.
The 10-year yield is back below 2.40% (-3 bps) and the dollar index, while better on the day, is contained within the lower half of yesterday’s range. Global stocks are under pressure once again, providing some additional lift to gold.