LAWRIE WILLIAMS: Gold in a brave new world

The past week has seen the fallout from the U.S Presidential election continuing unresolved.  President Trump has still not conceded defeat and continues with legal challenges to the counts in some states amidst talk of fraud and biased machine counts – much of which has been totally dismissed by his opponents as totally lacking in any firm evidence.  Just over half the American voting electorate sees Joe Biden as the new President as from next January, as does most of the rest of the world.  This unseemly wrangling over the election result throws the whole American voting system into ridicule.  That the ultimate result may come down to being in the hands of a judiciary that is largely politically appointed, and thus may lack independence, is seen as bizarre virtually the world over.

One would have expected the gold price, and that of the other precious metals to have been soaring over the uncertainty over the difference in political direction offered by the two Presidential contenders.  Indeed a sharpish rise was seen in prices when it became apparent that Joe Biden would probably emerge victorious.  However this was completely overturned when it was announced that pharmaceutical giant Pfizer was ready to launch a vaccine which it claimed was 90% effective in offering at least short term immunity to the COVID-19 virus.  The world breathed a sigh of relief.  The roll-out of the vaccine should offer a path back to near normality it was believed.

But the world seemingly ignored the fact that the vaccine had still not been approved by national health bodies and there might be considerable logistical problems in vaccine distribution assuming it is approved.  There are serious fears that vaccine approval would be pushed through over-rapidly by governments without all the usual checks and balances, which could normally take many months to complete with no guarantee of approval at the end.  Given the vaccine has to be kept at minus 80 degrees Celsius, the difficulty, and costs, of national roll-outs, while not insuperable, would probably be enormous too in view of the costs of meeting such stringent storage and distribution conditions.  Take-up of vaccination programmes would also likely be affected with anti-vaxxers raising ever new doubts about vaccine safety and efficacy.

Markets are driven as much by sentiment as by reality and there was an immediate knee-jerk reaction to the Pfizer virus announcement.  The gold price was marked down by as much as $100 at one time and equities soared worldwide.  Gold has since recovered part way and equities did fall back, but seem to have seen a ‘second wind’ develop at the end of the week.  The strong reaction was in part because the vaccine announcement was from Pfizer – a trusted name – despite the fact that there are other vaccines from China and Russia equally as far advanced in development, but there is some western distrust in vaccines from these nations.  The Chinese vaccine from Sinovac is already being trialled in Brazil, Indonesia and Turkey as well as in China itself.  However trials have been suspended in Brazil following the death of a trial participant, although whether this was due to the vaccine itself or an unconnected reason is as yet uncertain.  China reports the Sinovac vaccine as being safe, but the Brazilian death, despite denials that the death had anything to do with the vaccine trial, has led to the trial there being suspended.
So with the U.S election still potentially unsettled and the virus vaccine issue still not necessarily finalised there could yet be some gold price movement occurring in the final six weeks of the year.  The big falls in the gold price over the past couple of weeks probably mean that our forecast of $2,000 gold before the year end is becoming less and less likely, although not impossible. But we do feel the gold investor will not have to wait long in 2021 before that level is achieved again.  Should any major power like China or Russia seek to, or succeed in, taking advantage of the political disarray in the U.S. in the meantime, then all bets are off with respect to the timescale and significant advances in the gold price may be seen.

On the other hand, if an effective vaccine roll-out is accomplished before the year end, or seems likely to happen shortly thereafter, then precious metals markets could take another hit despite national and global economies being in a far worse state than they were pre-virus.  Some businesses will never recover, while others have benefited hugely from what is, in effect, now a digitally-focused economy.  Our equity market advice now would be to concentrate on those stocks able to take advantage of a much more stay-at-home society and, assuming Joe Biden is confirmed as President of the U.S., those viable companies that may benefit from an increasing global move to an ever-more environmentally-aware eco system.  Eschew those companies that are unable to move away from fossil fuel reliance.  Their days are numbered – maybe not immediately, but in the long term.

What of gold and the other precious metals?  There will always be those who turn to gold in periods of uncertainty and political disarray.  These will continue – perhaps even more so – as the world gets to grips with a new direction, and a new world order.  China, which has a much more agile capability to take advantage of new trends, looks like eventually becoming the dominant superpower, although this will take time – perhaps a decade or more.

Of the other precious metals, silver will ride, as always, on gold’s coattails – probably in a more volatile manner, while platinum may be protected by its usage in some growing aspects of technological advance. 

We have never been a huge long term fan of palladium though despite its apparent supply constraints.  Currently demand is hugely reliant on the demand for fossil-fuel driven vehicles.  As these are replaced by non-polluting alternatives – a trend which will grow more rapidly under a Biden U.S. Presidency, should this be confirmed as seems likely - demand will wane.  Projections suggest that this is a long term problem for the metal, but may not impact it seriously for a few years yet, but watch the trends closely. 

Things may well move far faster than expected with government queuing up to ban internal combustion (ic) engine manufacture, for small vehicles at least, within the next two decades.  While it may take time to wean petrolheads away from their favoured automobile powering option, the eventual non-availability of new ic vehicle options will force the issue.  Meantime the current constraints on take-up of electric vehicles (EVs) will fall away as battery technology improves to counter the current cost constraints, range anxiety and charging point availability falls away.  Other non-polluting vehicle options are also under development – none of these seem to involve palladium, although some do utilise platinum!

15 Nov 2020

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

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