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LAWRIE WILLIAMS: COVID continues to impact gold and silver

The spread of the COVID-19 coronavirus will continue to have a serious effect on Western economies and will, no doubt, affect the gold price as infections surge worldwide – notably in the U.S. and Europe which tend to set ongoing precious metals price patterns.  What has to be particularly disturbing at the moment is that Europe seems to be experiencing a new wave of infections, while the U.S. is in the throes of the highest incidence of recorded infections and deaths reported anywhere in the world.

There is increasing evidence that a new mutation of the virus is beginning to spread in Europe and is proving to be more infectious than the original, although not necessarily more deadly.  It is not certain whether the new virus strain has yet reached the U.S., but if not, when it does as it inevitably will, its effects could be horrendous in terms of another massive increase in infections and deaths.  We may have seen nothing yet?  The U.S., which is already beginning to see a post-Thanksgiving holiday surge in virus infections and associated deaths is currently seeing between 2 and 3 thousand new infections recorded each day and up to 3,000 or so virus associated deaths each day.

In Europe, the new virus strain appears to be spreading rapidly in the UK, and it may well be responsible for a massive uptick in recorded infections in Germany which had hitherto been seen as the European nation which had controlled the virus spread best of all.  On the latest figures Germany is currently recording the highest numbers of new cases and deaths in the whole of Europe,  This is an ominous sign that things may well get far worse before they yet begin to get  better.

There has been a very considerable degree of optimism (in our view unjustifiably so) that new vaccine developments and their roll out will quickly bring things back to normal.  Two vaccines – from Pfizer and Moderna – have now been approved in the U.S., and the Pfizer vaccine is already being administered in the UK, although not yet in the EU.  Other vaccines have been being given in Russia and China, but whether any of these will help stem the virus spread rapidly remains to be seen.  In most countries it would seem that the logistical problems associated with mass immunisation programmes probably mean that most people will not be able to be vaccinated until the second half of 2021, and it still remains to be seen whether the existing vaccines will be effective in controlling the virus spread, or how long any immunity to the virus will last in any case.  There are thus huge unknowns as to whether the pandemic can be brought under control rapidly, or even long term.

Even if the new vaccines do prove to be effective there is some enormous anti-vax resistance, particularly in the U.S.  Here worries about virus safety given their fast track approvals, coupled with conspiracy theories over mass vaccination actually being a plot by the global powers that be to exert deeper control over the populace – all fanned by social media – could have a strong impact on vaccine take-up.  In the U.S. much of this vaccine resistance seems to be along political lines with the almost half of the population which voted Republican being most resistant to vaccine uptake.  Surveys have suggested that almost half the U.S. population may refuse the vaccine and although these numbers will undoubtedly diminish this does not bode well for virus control across the world’s biggest current  economy.

Thus there is huge uncertainty over the impact of the vaccines and how long the coronavirus-related economic downturns will continue.  That has to be positive for gold and silver among the precious metals in particular as gold tends to thrive on uncertainty, and silver tends to move upwards with gold, but perhaps in a more exaggerated manner, in times of gold price advance.  But be warned – if gold does not perform silver can come crashing down equally quickly!

As for the platinum group metals (pgms), these are very much industrial metals nowadays.  If the global economy continues contracting, as we fear it may, then any prospects for growth alongside gold and silver could be stunted.  Palladium demand in particular is hugely reliant on the automobile market and if the economy does turn down this could well be a sector of the consumer market which may be hit particularly hard.  Many European countries in particular are looking to phase out internal combustion engine driven vehicles – palladium’s most important market, over the next decade and there is the chance that a more environmentally friendly U.S. Administration under a President Biden may be tempted to follow suit.  While this is unlikely to have a short term impact on thye palladium market, be warned.  This is likely coming as the U.S. becomes more conscious about climate change and its consequences and measures to try and control it.

We will be publishing our price predictions for precious metals, the major global equities indices and the dollar for the year ahead, hopefully before Christmas.  This is something of an invidious exercise given there is so much uncertainty related to the year ahead – my forecasts of a year ago underestimated the eventuality in almost all sectors, but then one could not have predicted the virus pandemic and its effects on the global and U.S. economies.  Let’s hope we do better this year!

19 Dec 2020 | Categories: Gold, Silver

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