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Gold Prices May Rise if Davos Forum, IMF Outlook Spur Easing Bets

Gold Prices May Rise if Davos Forum, IMF Outlook Spur Easing Bets

2020-01-18 20:00:00
Dimitri Zabelin, Analyst
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XAUUSD 2-hr Price Chart

GOLD PRICE OUTLOOK: BULLISH

  • Gold prices may rise if Davos forum spooks investors, spurs easing bets
  • Demand for havens may be amplified by IMF World Economic Outlook
  • US-EU trade tensions, corporate earnings may also magnify gold gains

Davos Conference in Focus

The annual conference in Davos, Switzerland from January 22 to 24 will be a closely-scrutinized event as world leaders and business titans convene to discuss the most pressing issues heading into 2020. Last year, the event elicited a significant amount of cross-asset volatility as officials gave their outlook for the global economy. However, this year, the impact may be felt wider and deeper across financial markets.

Since then, geopolitical tensions around the world have risen and further eroded the fundamental outlook which is already burdened with unusually-high uncertainty. Investors may therefore be particularly sensitive to comments from officials that have implications for monetary policy. A gloomy tone may inflame easing expectations from central banks and push the demand for anti-fiat hedges – like gold – higher.

IMF World Economic Outlook May Inflame Demand for Precious Metals

During the conference, the IMF will also be releasing its World Economic Outlook which may amplify the effect outlined above. Global growth updates from several institutions have been consistently revised downward amid strained US-China trade relations. It is likely that the IMF will cite similar ailments afflicting the global economy - only now the world is comparatively more vulnerable than it was a year ago.

Demand for Negative Yielding Debt Chart

EU-US Trade Tensions Rising

EU-US trade tensions may soon begin to escalate following a warning from the EU’s new trade chief Phil Hogan that the EU intends on retaliating with tariffs over WTO dispute with Boeing. Relations between Washington and Brussels has been put on the backburner, though it may become the new trade war of 2020. A revived cross-Atlantic trade tiff would further undermine global growth and may push gold prices higher.

Soft Company Earnings May Spur Easing Bets

A number of major corporations will be releasing this earnings this week, including giants such as Netflix and IBM. Despite equity markets reaching record-breaking highs, earnings reports are expected to be relatively flat. The worst-than-expected prints could make investors turn to the Fed in hopes that the poor data will make them more inclined to further ease credit conditions. Gold my rise on this far-reaching hope.

Industrial Data Cascade May Spook Investors

A cascade of PMI data from the US, France, Germany, Eurozone, UK and Australia will also be published this week which may reinforce slowdown fears and inflate easing bets. Gold prices may subsequently rise alongside demand for anti-fiat hedges. Given the fundamental risks laying ahead in 2020, the tepid stabilization in PMI may be less of a turning point and more a moment of calm before the prior trend resumes.

Global Uncertainty Chart

GOLD TRADING RESOURCES

--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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