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LAWRIE WILLIAMS: Virus advance should lead to a turn to gold and silver

Rapidly advancing virus infections and deaths in Europe, the USA and Latin America in particular are continuing to create economic downturns around the world.  Even those countries which seem to have been able to exert some degree of control will be finding their economies suffering from a fall-off in demand in their key export markets. COVID-19 is truly a globally adverse economic fact of life, and will remain so for many months, if not years, to come.

While US infections and virus-related deaths seem to make most of the headlines nowadays, that is largely a function of population size – per capita European figures are even worse and the UK is probably suffering just about worst of all with the rapid spread of a new more transmissible virus variant.  If past growth spread figures are anything to go by, this variant will soon become almost all-consuming as it progresses around the globe.  A particular worry has to be the U.S. where Dr, Anthony Fauci has already warned that things will get worse before they begin to get better.

(Dr. Fauci is an immunologist who has served as the director of the National Institute of Allergy and Infectious Diseases since 1984. Since January 2020, he has been one of the lead members of the Trump administration's White House Coronavirus Task Force addressing the COVID-19 pandemic in the United States and will continue in this position as an adviser to the incoming Biden administration.  His opinions should, therefore, be taken extremely seriously.)

To put this into context, the U.S. is currently reporting over 3,000 COVID-related deaths a day.  While the incoming Biden administration will, no doubt, prioritise a huge mass-vaccination programme, this is unlikely to have much effect on the economy until late in the year, even with a 100% vaccine take-up.  But there is a significant part of the U.S. populace which appears to believe the social media spread conspiracy theories that the virus itself is a hoax and the vaccinations represent an attempt by the deep state to inject the population with mind-control elements at the very least.  This will, no doubt, lead to substantial vaccine refusal by anti-vaxxers which will have to have an adverse impact on the efficacy of any national immunisation programme success.

It’s not that anti-vaxxers are restricted to the USA though.  There is a substantial anti-vax movement in France, although this tends to revolve around doubts about the speed of vaccine approval than more obscure conspiracy theories.  Presumably there will be anti-vax movements in other countries too – not least in the UK – all of which could hinder global virus control progression.

So what does all this mean for precious metals?  Equities markets have remained remarkably resilient in the face of some pretty dire global economic figures, but they have been strongly supported in most countries by government and central bank largesse designed to help mitigate the adverse economic effects of the moves being taken to try and bring the virus spread under control.  But this has all been at enormous cost with national debts run up that can probably never be repaid unless mitigated by severe inflation or some kind of global financial reset.  This could have a drastic impact on global economies as countries struggle to repay, or mitigate, this massive debt build-up, while driving investment into safe haven counters like gold and silver.

Gold and silver were marked down sharply this past weekend.  Canadian economist and gold expert, Dr. Martin Murenbeeld, whose opinions I rate highly, points out that gold's plunge this past week looks ominously like that which occurred in March 2020 on COVID-induced recession fears. Friday’s US employment report indicating a decline in employment during December on renewed business shutdowns and record COVID infections and deaths – is suggestive of another economic downturn before the vaccine rollout takes full effect, likely to be much later this year. Analysts had been forecasting a small employment increase in December so the latest figures came as a bit of a shock.  However in a more optimistic note for gold holders, Dr. Murenbeeld  followed up with the comment that the March 2020 decline gave way to a new price surge that took the goldprice up to in excess of $2,000 by early August!  We shall soon see if he is right in this suggestion implying that the gold price may see a similar surge on this occasion too!. 

We are certainly still anticipating an uptick in gold, silver and platinum prices over the year ahead – see: A $2,200 plus gold price this time next year? Christmas cheer for gold and silver.  That article was written just before Christmas and nothing has occurred since then that would change our expectations for a 20% or so price rise by the year end.  However, if the vaccine rollouts appear to be bringing the virus under control by then – which will somewhat depend on a high vaccine take-up in the U.S. and Europe, which is not a foregone conclusion, we may see signs of euphoria in the equities markets which could dampen precious metals prices too. 

But, if there are still signs by the year end that the virus spread is not yet under control – and we think there is a strong possibility that this may still be the case – precious metals prices could see another surge.  The virus is far more persistent than most of us saw back in Q1 2020 – how many of us thought that we wouldn’t be coming out of it by the second half of 2020  for example?  So much depends on the roll out and the efficacy of the vaccines and as we pointed out earlier there may be considerable resistance to vaccine take-up in some parts of the world anyway. Countries without sophisticated logistical capabilities – which probably includes much of the world – will be lagging behind in immunisation programmes.  COVID-19, and its mutations, may yet be with us for some years yet! 

11 Jan 2021 | Categories: Gold, Silver

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