(Kitco News) - Global economic uncertainty appears to be contributing to a safe-haven bid in gold, as prices trade near session highs after the International Monetary Fund (IMF) warned the world that downside economic risks are increasing.
In its latest updated economic projections, the IMF stated that it expects the global economy to expand by 3.2% in 2025, unchanged from 2024. Analysts described global economic activity next year as stable but underwhelming.
They also noted that while a soft landing for the economy is within reach as central banks bring inflation under control, the world still faces a growing number of threats.
“The balance of risks is tilted to the downside: geopolitical tensions could flare up; sudden eruptions in financial market volatility could tighten financial conditions; problems in China’s property sector could generate global spillovers via their effect on global trade, as could rising protectionism and continued geoeconomic fragmentation; and disruptions to the disinflation process could prevent central banks from easing monetary policy, adding challenges to fiscal policy and financial stability. Amid numerous threats, it is time for a policy pivot,” the IMF said in its report on Tuesday.
Analysts note that while gold prices have come off their session highs, the market remains well-supported. The IMF’s warnings have added another factor driving investment demand.
December gold futures last traded at $2,754.70 an ounce, up 0.58% on the day.
While not mentioning the U.S. specifically, the IMF also indicated that protectionist governments could pose a threat to global growth in the coming year.
“An intensification of protectionist policies would exacerbate trade tensions, reduce market efficiency, and further disrupt supply chains,” the analysts said.
These comments come as Republican candidate and former President Donald Trump has seen a rise in his chances of winning the November election. One of Trump’s key policies is to impose 60% tariffs on imports from China and 10% duties on imports from the rest of the world. Economists have warned that this could drive inflation higher.
Regarding the U.S., the IMF projects the economy to grow by 2.2% next year, down from 2.8% in 2024.
Interestingly, Canada is expected to lead the developed world in economic activity next year. The IMF forecasts the Canadian economy will grow by 2.4%, up from 1.3% expected this year.
The European economy is projected to expand by 1.2% next year, up from 0.3% growth in 2024.
The U.K.’s economy is expected to grow by 1.5% in 2025, up from 1.1% anticipated this year.
Last week, IMF economists warned that global sovereign debt was on an unsustainable path. They reiterated in Tuesday’s report that steps need to be taken to curb spending.
“In many countries, shifting gears on fiscal policy is urgently needed to ensure that public debt is on a sustainable path and to rebuild fiscal buffers; the pace of adjustment should be tailored to country-specific circumstances,” the IMF stated.
