IMF caution on economy potentially bullish for Gold
NEW YORK (Scrap Register): International Monetary Fund caution about the global economy is potentially gold bullish, said British bank HSBC.
Analysts cited an IMF report stating that while global financial stability has improved, there are risks ahead for the global economy. Analysts also cited that the IMF view that easy monetary and financial conditions against a backdrop of sluggish inflation is elevating medium-term risks, with risks rotating from banks to financial markets.
The IMF essentially cautioned that policymakers need to ensure that growing financial vulnerabilities are contained while monetary policy remains supportive of the recovery.
“If this is not done smoothly, rising debt loads and overstretched asset valuations could undermine market confidence,” HSBC added.
If risks are rising in global financial markets, as the IMF warns, and they are not successfully contained, volatility in the financial markets may trigger safe-haven buying in gold.
While a liquidity crisis or sudden bursting of an asset bubble is obviously gold bullish, even the fear of one developing may stimulate greater gold purchases than would otherwise be the case.