The World Bank’s latest report may have served as a tailwind for gold. The yellow metal remains in a holding pattern above $1,830 an ounce.
What’s in the report? The bank lowered its global growth forecast to 2.9% from 4.1% at the beginning of the year. It also warns that the world’s economies may be facing years of high inflation or stagflation.
How’s the market responding? Gold ETFs saw a massive 53-ton outflow in May, according to the World Gold Council. Even after today’s May CPI report, which was worse than expected, mainstream investors seem clueless as to the opportunity gold offers in light of surging inflation.
Out golden nugget insight: Are investors across the globe seeing signs that the opposite scenario might occur. And if not, does this outflow present an opportunity to play the contrarian?
Gold climbed slightly to a good $1,850 yesterday and is still trading at roughly this level on Wednesday. On Tuesday, the World Bank lowered its 2022 global growth forecast to 2.9% from 4.1% in January. What’s more, global inflation will likely remain above target in many economies, lending support to gold, economists at Commerzbank report.
No demand for gold ETFs in May
“Gold was lent support by the World Bank’s report on the economic situation and outlook. In it, the World Bank has further lowered its forecast for this year’s global economic growth to +2.9%. At the same time, it warned that we could be facing several years of below-average growth and above-average inflation. We believe this will benefit gold in the long term, as it is likely to come into its own as a store of value in such an environment.”
“The World Gold Council (WGC) published figures yesterday for the gold ETFs it tracks. They show outflows of 53 tons in May, bringing a series of four consecutive monthly inflows to an end.”
“The ETF outflows accompanied the downward trend of the gold price that began in April and continued until mid-May. In our view, the price slide was due chiefly to the appreciating US dollar and rising bond yields. In a current market commentary, the WGC also points to the low investor interest, reduced risk perception, the decline in market-based inflation expectations and the recent surge on the stock markets.”
Originally published on FX Street.