Home > Slowing Global Economy and Geopolitical Tensions Send Gold Prices Higher

Slowing Global Economy and Geopolitical Tensions Send Gold Prices Higher

June 17th, 2014

gold time: Gold prices pared some of its recent gains on Tuesday, ahead of the outcome of the U.S. Federal Open Market Committee decision due out on Wednesday.

Last week, the price of gold jumped when the World Bank released its latest report regarding the global economy. After trading at around $1,260 an ounce, prices broke above $1,270 an ounce, fuelled by the World Bank slashing its global GDP forecast on weaker outlooks in the U.S. and elsewhere. Then on Monday, gold prices pushed higher to hit their highest in nearly three weeks as escalating turmoil in Iraq and Ukraine resulted in fresh safe-haven buying. Prices of spot gold traded above $1280 an ounce before paring some of its gains on Tuesday.

Despite the expansionary monetary policies of the major central banks of the US Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England there is very little evidence to show that their stimulus programs have created any economic growth.

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In its latest World Economic Prospects report released recently, the World Bank states that global economic growth in 2014 is likely to be weaker than expected, with the poor weather in the US, financial market turbulence and the Ukrainian issue serving as drags.

The bank lowered its global economic growth forecast for 2014 to 2.8% from the 3.2% it estimated earlier. At the same time, the World Bank left its forecast for 2015 and 2016 broadly unchanged at 3.4% and 3.5%, respectively.

The World Bank also suggests that the acceleration in 2014 growth would come from countries such as the US and the Eurozone nations. Growth in these countries is expected to accelerate to 1.9% in 2014 from 1.3% in 2013. A further pick-up in growth to 2.4% and 2.5% is estimated for 2015 and 2016, respectively.

The World Bank expects the Eurozone countries to grow by 1.1% in 2014, while it lowered its growth forecast for the US to 2.1% from 2.8% it estimated earlier, given the contraction in GDP experienced by the world’s largest economy in the first quarter.

Developing countries are expected to grow by 4.8%, less than the 5.3% growth estimated in January. The anticipated weakness is premised on capacity constraints and an eventual tightening of financial conditions.

China’s growth is expected to slow down to 7.6% in 2014 and further to 7.5% in 2015 and 7.4% in 2016. On the other hand, the World Bank sees India growing by 5.5% in 2014, faster than the 4.7 growth in 2013.

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