The International Monetary Fund is warning of dangers to world financial markets and economies that could substantially boost the appeal of precious metals.
In its latest Global Financial Stability Report, the IMF observes that investors, particularly those in fixed income, are stretching for higher returns, which is fueling overheated markets. “As the search for yield intensifies, vulnerabilities are shifting to the nonbank sector and market risks are rising,” the report cautions.
The IMF is urging central banks, including the U.S. Federal Reserve, to be cautious in removing the monetary stimuli that propped up economies in the aftermath of the financial crisis. If monetary authorities raise interest rates too rapidly the IMF predicts “rising debt loads and overstretched asset valuations could undermine market confidence in the future.” The Fed is widely expected to raise interest rates in December for the third time this year, and is forecasting three additional rate hikes in 2018.
In yet another warning, the International Monetary Fund believes some of the world’s largest commercial banks still pose dangers to the financial system. Nine of the thirty “global systemically important banks” remain on its watch list, with Citigroup the only U.S. bank named. Three European, three Japanese and two British banks are also cited for weakness. “As problems in even a single globally systemic important bank could generate systemic stress, supervisory actions should remain focused on business model risks and sustainable profitability,” cautioned the IMF.
In response to the IMF report, HSBC precious metals analyst James Steel advised clients of the possibility that gold could spike higher on fears of a liquidity crisis or the possible bursting of investment bubbles.