After a pullback last week, gold has rebounded and is once more above $2,000 per ounce as investors continue to react to changing pandemic news.
News last week of a potential vaccine in Russia, triggered a sell-off for gold and silver that saw both precious metals drop to monthly lows, as optimistic investors grabbed onto hopes of a potential quicker recovery than expected.
As medical experts globally cast aspersions on how safe the Russian vaccine could be given the lack of testing however, these hopes quickly evaporated, and gold and silver saw prices recover somewhat.
Poor GDP results from Japan over the weekend, as well as the postponement of trade talks between China and the US, have reinforced the economic conditions supporting the case for precious metal investors. Strong trading overnight saw gold climb back above the recent milestone of $2,000 per ounce to a weekly high of $2,015.89 so far today.
The price of gold in USD for the past month, showing last weeks dip, and this weeks recovery.
A correction had been expected for a while given the impressive gains both gold and silver have made in the past few months – a momentum that could only be maintained for so long. Their ability however to halt the sell off so quickly, and then make a recovery in just a few days is further proof of the supportive global conditions for safe haven investments.
A vaccine will take time to test fully, and then even longer to produce in the numbers necessary for an effective vaccination program. With a Chinese vaccine announced to cost £110 for just two doses, there will also be a question of whether governments will be able to afford largescale vaccine programs following the already sky-high costs of the pandemic response so far.
Money printing looks set to continue, despite the current failure of US lawmakers to agree on a rescue package ahead of their summer recess, and the inevitable result of such money printing will be inflation.
The postponing of trade talks between the US and China, will also be familiar news to many investors following the markets in 2019, and is a stark reminder that many of the geopolitical issues that were supportive for precious metals last year have not gone away. Relations between China and America have significantly deteriorated since 2019 and could see the trade war escalate when talks finally resume, adding to the already ailing global economy.
With interest rates at record lows (and negative in real terms) and bond yields near or at record lows – both of which are expected to last for years to encourage economic recovery – many investors are still turning to bullion as a hedge against inflation.
Past performance does show that such corrections will happen as prices rise and profit taking begins, but until economic recovery looks more assured, and money printing ends once more, the conditions are still strong for gold and silver going forward in 2020.