Experts look at what will happen to gold costs once a vaccine for COVID-19 is found, and how the price trajectory will look along the way to a cure, while also analysing what buyers and investors should do meanwhile to make the most of the fluctuation to one’s advantage.
Dubai: Given that the price of the shiny yellow metal has plunged recently what does this mean for buyers and investors. Moreover, what should they base their decisions on these coming days and months, given the metal has been more volatile off late and seemingly losing its ‘safe-haven’ status among investors.
Earlier this week, gold prices booked its biggest daily drop in over seven years after news of an effective coronavirus vaccine candidate rocked prospects of the metal, which was a good sign for buyers looking to stock up on the metal at cheap prices, but not so much for an existing investor who was looking to turn a profit in gold and gold-related assets.
Global pharmaceutical giant Pfizer said its co-developed experimental vaccine candidate, currently going through tests involving 40,000 people, was 90 per cent effective at preventing COVID-19. Analysts then opined the drug arguably prevented infection in the vast majority and while the study isn’t yet complete, in these volatile markets, gold’s response made sense for the trend watchers.
Promise of a vaccine for the deadly coronavirus infection has always been viewed as a scenario where gold prices can decline in the near term because it could help forge a stronger economic recovery, market analysts and economists have frequently reiterated this past week.
What is currently driving the metal’s prices?
Analysts also confirmed that this is good news the global marketplace has been awaiting for months, especially during a grim period when the pandemic appears to be worsening in many global economies.
From a stock market or investor perspective, gold’s decline comes after the metal has been accumulating months of gains and analysts say going forward, prices will be on the downward trend, so investors and buyers alike are asked to brace for more price drops.
Anlaysts also opine that in the run up to Democrat Joe Biden’s victory in the US presidential election, the metal’s prices had been gaining a bit too rapidly, and that contributed to gold’s dramatic decline as well. What this means is that the sell-off was likely a reaction from investors who piled in to gold recently, convinced that a Biden win be positive for the precious metals and negative for the US dollar.
However, the precious metal has now erased all its gains since the US election, when hopes for more cash injection (stimulus) to the world’s largest US economy helped prices push higher.
Gold, traditionally a hedge against currency declines and inflation, has climbed 24 per cent so far this year, mainly driven by the unprecedented levels of stimulus seen around the globe. Optimism that a vaccine is imminent may slow or diminish further stimulus measures to support economies ravaged by shutdowns.
What is the verdict for investors?
As the market calmed following the initial seemingly drastic price reaction, gold has regained its footing and currently trades between around $1,850 (Dh6,794) and along the $1,920 (Dh7,052) mark.
Confined between the two levels and grasping for its next move, some analysts might suggest the outlook for gold prices going higher has been eradicated by the coming vaccine.
However, there are others who are of the opinion that while a readily available vaccine on the horizon is an undoubtedly positive development for the world, there is a question of how quickly herd immunity can be reached.
What the analysts say is that even if the drug is 90 per cent effective, such a vaccine would still require a majority of the population to be vaccinated until the hurdle for herd immunity is met. Further still, distribution could prove to be difficult and only delay the uptake more.
With that in mind, many of the catalysts behind gold prices going higher remain. Thus, the development of a coronavirus vaccine may not have killed the bullish (rising) outlook for gold, but it has clearly undermined it this week.
Long term outlook positive for gold
To that end, several trend watchers are of the opinion that fundamental drivers behind higher gold prices should linger even after a vaccine is distributed, so the yellow metal’s outlook remains positive over the longer term.
Prices look currently stable around the $1,850 (Dh6,794) mark appears to have provided a springboard for a quick recovery. So, unless gold breaks its current pattern by falling below $1,800 (Dh6,611) many analysts are hesitant to suggest that the bigger-picture has changed.
Moreover, another interesting pattern was that gold prices plunged by a similar size when in August, gold marked its steepest daily decline in nearly five months then, following the news that Russia’s COVID-19 vaccine has obtained regulatory approval.
Given that prices have continued to rise since then, it proves that without concrete evidence of a definite vaccine, gold prices are set on the trend upwards for now, at least till maybe it drops below the $1,800 (Dh6,611) mark, after which technical analysts say prices are then on a downward path.
What will appeal to buyers?
Currently, the prices are still too high for buyers to flock to retailers to buy the metal, matter experts reveal. As gold prices have soared this year, it has been putting a squeeze on jewellers’ prices and profit margins and it’s still way too high for shoppers, more so with a pandemic on.
As recession risks have increased, consumers are looking to liquidate some of their fine gold jewellery, and are still not yet looking to buy as much, even though holiday season is approaching – generally a peak time seen in terms of demand for gold.
Investors can buy physical gold directly from shops, traders and even a number of gold ATMs. There is no restriction on the amount one can purchase, although there are limits on the amount that can be carried into certain countries. People can also invest by proxy either by buying shares in companies that mine for gold, or in gold-based ETFs.