(Kitco News) - The gold market continues to see solid profit-taking at the start of the North American equity market open and is not seeing any renewed safe-haven demand, even as the International Monetary Fund (IMF) significantly downgrades the U.S. GDP for this year.
According to updated economic projections, analysts at the IMF see the U.S. GDP growing 1.8% this year, down 0.9% compared to the January projections, according to the latest World Economic Outlook published Tuesday.
At the same time, the IMF sees the European economy growing by 0.8%, down 0.2% from its previous estimate. Total global GDP is expected to expand 2.8%, down 0.5% from January.
“Intensifying downside risks dominate the outlook. Ratcheting up a trade war, along with even more elevated trade policy uncertainty, could further reduce near- and long-term growth, while eroded policy buffers weaken resilience to future shocks,” the analysts said in the report.
“The path forward demands clarity and coordination. Countries should work constructively to promote a stable and predictable trade environment, facilitate debt restructuring, and address shared challenges. At the same time, they should address domestic policy and structural imbalances, thereby ensuring their internal economic stability. This will help rebalance growth-inflation trade-offs, rebuild buffers, and reinvigorate medium-term growth prospects, as well as reduce global imbalances,” the analysts added.
Along with weak growth forecasts, the IMF also revised its U.S. inflation outlook to 3%, up 1 percentage point from the initial projection in January.
The gold market is not seeing much reaction to the disappointing economic downgrades as traders react to the market’s bullish momentum. Overnight, gold prices tested resistance at a new all-time high of $3,500 an ounce.
However, the market has seen solid profit-taking through the European trading session and into the North American open. Spot gold last traded at $3,428.20 an ounce, up 0.14% on the day.
Although gold is seen as an important safe-haven asset, some analysts have noted that a recession could prove initially challenging for the precious metal as investors are forced to liquidate their profitable trades to cover their losses in equity markets. However, analysts also note that historically, gold still tends to outperform equity markets during economic slowdowns.
