Investors gloomy over monetary policy outlook

Precious metal sales could be set to rise in the coming months, as investors become increasingly risk averse due to global economic conditions.

A recent BofA (Bank of America) Merrill Lynch Fund Manager survey revealed investors are gloomy over quantitative easing (QE) coming to a stop and continued problems in the Eurozone.

The study, which was conducted before the US Federal Reserve confirmed its bond-buying program had finished, showed only 32 per cent of respondents feel the global economy will strengthen over the next year. This is the lowest sentiment has been since 2012, and the result followed a staggering 20 percentage point drop between September and October.

According to BofA Merrill Lynch, earning and inflation predictions have slumped, with 77 per cent of investors believing the world is experiencing below-trend growth.

Furthermore, appetite for European investment has waned, following a European Central Bank (ECB) press release earlier this month that left it uncertain whether the institution would be pursuing a QE policy of its own. Over one-quarter of investors now believe the ECB will avoid an asset purchase scheme, up from 19 per cent in September.

“With the ECB ‘hope trade’ gone, performance in European equities is reverting to fundamentals,” said Manish Kabra, European equity and quantitative strategist.

“As our view remains downbeat, we continue to favour defensive dividend yield stocks and expect any rallies in cyclical stocks to be short-lived.”

Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, made similar remarks, claiming investors had retreated to benchmark positions.

Reducing risk

The research showed only 18 per cent of investors feel monetary policy is too stimulative, tumbling 14 percentage points month on month to its lowest level since August 2012.

“Perceptions of monetary risk have also risen, along with emerging market risk,” the report added.

Overall, the survey paints a gloomy picture for many of the world’s financial markets, with investors sceptical towards both fiscal and monetary policies.

This could spell good news for gold and silver bullion markets, as more people may turn to safe haven assets for wealth preservation and reduced volatility.

The Sydney Morning Herald recently reported that while Australia avoided much of the global financial crisis, the country is still often affected by socio-political problems abroad.

Forex.com research analyst Chris Tedder said: “The big question is, ‘are these global imbalances between the major drivers of global growth going to drag down the US economy and create a more systemic issue for global growth?’

“We see that it definitely could. The market is incredibly nervous and that nervousness is not going to go away given the persistent threat of diminishing global growth.”

Chief Economist for North America at BNP Paul Mortimer-Lee had similar concerns, adding that the global economy and markets haven’t psychologically or physically recovered from the downturn.

Previously, the economic impact on Australia was limited due to Chinese demand for the country’s commodities. However, this consumption has since dried up, meaning Australia could suffer more severely if another financial crisis were to occur.

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