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(Wallace Refiners) – The gold market is holding on to steady gains above $1,700 an ounce even as expectations for a robust global economic recovery continue to grow.
Tuesday, the International Monetary Fund (IMF) raised its global growth forecasts as now sees the global economy expanding 6% this year and growing 4.4% in 2022. The latest forecasts are up compared to the October growth forecasts of 5.2% and 4.2% respectively.
Over the medium term, the IMF expects global growth to settle around 3.3%.
Although the IMF has become more optimistic, the analysts note that its forecast it dependent on the path of the global recovery from the COVID-19 pandemic.
“The outlook presents daunting challenges related to divergences in the speed of recovery both across and within countries and the potential for persistent economic damage from the crisis,” the IMF said in its report. “A high degree of uncertainty surrounds these projections, with many possible downside and upside risks. Much still depends on the race between the virus and vaccines.”
The gold market is taking the latest IMF projections in stride, holding on to solid gains. June gold futures last traded at $1,737.10 an ounce, up nearly 0.5% on the day.
Looking at nation-specific forecasts. The IMF expects the U.S. economy to expand by 6.4% this year, up from its January forecast of 51.%. Meanwhile, Canada is expected to see a much sharper recovery with the IMF seeing economic growth of 5%, up from its previous forecast of 3.6%.
Not only does the IMF expect the global economy to bounce back this year but another negative for gold is that it does not expect to see major inflation pressures. Although the recovery is expected to create some volatility in price pressures, the IMF said that this should be short-lived.
“Baseline projections show a return of inflation to its long-term average as the remaining slack subsides only gradually and commodity-driven base effects fade away,” the analysts said. “The subdued outlook reflects developments in the labor market, where subdued wage growth and weak worker bargaining power have been compounded recently by high unemployment, underemployment, and lower participation rates. Moreover, various measures of underlying inflation remain low.”
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