Precious Materials Insight: Vaccine hopes drag on gold prices, but lengthy economic recovery will underpin
29 Nov 2020
By David Brough
Hopes for a successful vaccine rollout pushed down gold prices on course to the sharpest monthly fall for four years, but the yellow metal will be buoyed by expectations for a prolonged and arduous economic recovery.
The latest positive news about vaccines development in the face of the coronavirus pandemic has eroded the appeal to investors of “safe haven” gold.
However, gold prices are likely to be well-supported in the near term by continuing rising numbers of coronavirus cases and expectations that it will take a long time, possibly years, for global economies to pick up again, with U.S. interest rates set to remain at very low levels for a prolonged period.
Gold shed more than 0.5 percent to $1,772.16 per ounce on November 30, down 5.6 percent month-on-month, pushed lower by vaccines optimism and on prospects for a smooth transition in the U.S. presidency.
Consultancy CPM Group wrote,
“Gold prices have been declining since November 9, and that trend seems set to continue in the short term.
“Positive news on Covid vaccines and the U.S. election drama, mostly behind the market is creating a risk-on environment that has pushed (gold) prices down as investors backed away.”
Gold’s slide will be limited by expectations of a big U.S. economic stimulus package to safeguard Americans whose livelihoods were devastated by the coronavirus crisis.
Stimulus measures will stoke fears over inflation, boosting the appeal of gold which is seen as a hedge against rising prices.
Lawrie Williams, gold market commentator with bullion dealer Sharps Pixley, wrote,
“It would seem that vaccine optimists may be getting out of gold in the expectation that economic growth may start to return to normal once a mass vaccination programme is implemented.
“However, hopes of a speedy vaccine rollout and a rapid return to anywhere near normality may still be months, if not years, away yet and once this realization sinks in the effects on equities (negative) and gold (positive) could well begin to influence the overall picture.”
For UK jewellers, the latest slide in gold prices is unlikely to impact upon their sourcing strategies for the Christmas season.
“At this late stage, ahead of the festive season, I believe most retailers and wholesalers will concentrate on sell-through of existing product to maximise profit and stock turn in what has, of course, been a turbulent year,” said Helen Dimmick, the NAJ’s Retail Ambassador.
“I anticipate any replenishment and sourcing will be cautious and specifically demand-related, regardless of gold prices.”
Sharps Pixley’s Williams said he now sees gold prices largely marking time for the remainder of the current year.
“However, we do see the price moving upwards again from the beginning of 2021. The recent downturn may thus have been overdone,” he wrote.
For UK jewellers, another key factor to watch closely as we head towards year-end will be the exchange rate between the pound and the U.S. dollar, with a strong focus on the progress of EU-UK trade talks.
With just over a month left of a transition period before Britain exits the EU, trade talks are centred on fishing disputes and state aid, with the prospect of significant volatility in the exchange rate depending on how the talks unfold.
A stronger pound, underpinned by recent optimism over the progress of the talks, would make it cheaper for UK jewellers to acquire dollar-denominated gold, and vice versa.
Disclaimer: Any opinions expressed in this column are solely those of the author and should not be considered as investment advice.
Stay informed
Get the most important updates and insights in the jewellery industry by subscribing to the NAJ Newsletter. It's free.
Join the NAJ Mailing List
Source: The National Association of Jewellers