Gold leaps higher as OECD, Moodys warn of global slowdown
Just when some analysts were calling an end to golds resurgence, the yellow metal reversed and moved sharply higher Thursday as stocks stumbled and two major agencies warned that the global economy is on the skids.
Overwhelmingly bullish sentiment: Golds inverse relationship with the stock market continued to prove its mettle, with the bullion price rising 2% and topping $1,234 by afternoon after earlier struggling to hold the $1,200 level. Silver also gained, up 1.3% near $15.48.
The equities pulled back. Gold popped, RJO Futures strategist Bob Haberkorn told Reuters. While equities are starting to come back and oils shown a little bit of life, gold is strengthening as the day goes on. The sentiment in gold right now is overwhelmingly bullish.
That turning point midday, you had stocks sell off a little bit. Now gold has turned up pretty meaningfully, added Rob Haworth of U.S. Bank Wealth Management. Golds working as a safe-haven trade right now in this era of negative interest rates in Europe, Japan, Sweden, and Denmark.
Moodys issues bearish outlook: A new report from Moodys also served as a buzz kill for stock investors. Its 2016-17 Global Macro Outlook report warned that risks to global growth have increased since November and world leaders have little left in their fiscal and monetary arsenals to mitigate the threat, CNBC reported.
The ratings agency said that growth prospects were being hammered by Chinas slowdown, a slump in commodity prices and tighter financing conditions in some emerging markets.
This pain would outweigh factors helpful to growth, such as the loose monetary policy in Europe, Japan and the U.S.
U.S. faces headwinds, says OECD: Meanwhile, the Organization for Economic Cooperation and Development issued its own warning and cut its global growth forecasts, from 3.3% to 3%. It said the U.S. is facing an intensification of headwinds, including the drag on exports from the stronger dollar and energy sector investment from low oil prices.
Financial stability risks are substantial, the OECD said. Some emerging markets are particularly vulnerable to sharp exchange-rate movements and the effects of high domestic debt.
Its solution? More spending! A stronger collective policy response is needed to strengthen demand, the OECD said. Monetary policy cannot work alone. Fiscal policy is now contractionary in many major economies. Structural reform momentum has slowed. All three levers must be deployed more actively to create stronger and sustained growth.
More hikes unwise, Fed exec says: The chief of the worlds biggest hedge fund, Ray Dalio of Bridgewater Associates, also told clients to prepare for lower than normal returns with greater than normal risk. Central banks will be forced to increasingly ease through negative interest rates and quantitative easing, Dalio predicted, but said these tools are losing their potency.
A top Federal Reserve official pretty much underscored Dalios message Wednesday night. St. Louis Fed President James Bullard said it would be unwise to continue a normalization strategy in an environment of declining market-based inflation expectations. He also implied that more QE and even negative interest rates could be on the table.
No wonder gold is on the move higher again. With major economic agencies forecasting slowing growth ahead, central bankers who recently were talking up higher interest rates are now on the verge of reversing course once again, and thats bullish for the yellow metal.