GOLD AND PANDEMIC
Before the pandemic, The United States was enjoying the longest period of uninterrupted growth in U.S. history dating back to 1854. Unemployment was at a 50-year low and the inflation rate was below the Fed’s standard target of 2.0%.
Suddenly, the pandemic has disrupted lives, led to the loss of lives, pushed the hospital systems to the limit, caused epic damage to the U.S. job market, slowed down the economy and the U.S. GDP growth fell by an astounding 31%. And the pandemic intensified and business operations were curtailed to control the spread of the virus. It forced more companies to cut jobs. The U.S. National unemployment rate rose to a historic high of 14.7% in May 2020,
Besides, consumer spending fell and U.S. industrial production dropped sharply in mid 2020. And the U.S. economy had fallen into a depression. As of January 2021, there are over 95 million confirmed cases and 2 million deaths in the U.S. and the rates are increasing daily. The covid-19 pandemic has created both a public health crisis and an economic crisis to deal with. In the United States, there has been a balancing “tug of war” between the health of people and the health of the economy.
In November 2020, the world is moving a step closer to ending the coronavirus pandemic. After developing and testing for months, pharmaceutical companies Pfizer/BioNTech, AstraZeneca, Moderna, and the University of Oxford reported that their covid-19 vaccine is up to 95% effective. The world embraces positive news of vaccines with optimism that there is “a light at the end of the tunnel.”
After government regulatory approval, the vaccines are to be distributed across the country and territories to deliver shots to millions of Americans. This encouraging news on the Covid-19 vaccine development helped stocks rise higher on Wall Street and global stocks markets were rejoicing. But the distribution of vaccines and immunization of the entire population can be a massive undertaking. It requires extraordinary communication, planning, and coordination by Federal, state, local and private organizations.
Experts cautioned that even if Pharmaceutical companies win approval for its vaccine, they need much more data to improve. The Pfizer vaccine is difficult to transport and it requires very cold storage with a temperature of about minus 95 degrees Fahrenheit.
Gold shines brightly throughout the Covid-19 crisis. On August 4th, 2020, Gold’s price climbed its highest level above $2000 ($2021 per ounce) for the first time in history as investors look for safer places to store their money. A record hit inflow of $40 billion of gold into Gold E.T.F. arrived in the first half of 2020, the World Gold Council said.
But Gold prices on Sep 23, 2020, fell below $1900, a psychologically important round number. Spot gold fell 1.5% at $1,894.73 per ounce as the U.S. dollar strengthened making gold bullion expensive.
In October 2020, in the U.S. Congress, Republicans and Democrats were at odds over a Covid-19 relief plan and hope of getting the Covid-19 pandemic stimulus package began to fade as the Coronavirus continued to spread with accelerated infection rate across the country. Then gold prices tended to rebound and fluctuate above and below $1900 for several months.
Nevertheless, investment in gold still remains strong. ETFs backed by physical gold climbed to a record amount of 111 million ounces, according to the World Gold Council, The Authority on Gold.
The positive updates on the covid-19 vaccine are going to be dominant for the markets. Throughout 2020, risk aversion, central bank liquidity, and global uncertainty have pushed the gold price up to its historic peak. The ultra-low U.S. interest rate is one of the causes of the gold price hike recently.
But the gold price may lose its rising momentum beyond pandemic after the virus is fully contained and the economy will eventually recover. The promising economic data, effective vaccine, and expanded gold supply could cause the precious metal price to drop further over the coming months. According to the U.S. Market Watch Group – Gold prices may have more dips in the near future as more promising vaccine news emerges.
Despite dramatic fall, gold price is expected to recover eventually. “Even though gold is now at crossroads of volatility, the safe-haven trade for gold will not be completely gone. As long as the dollar weakened and the economy crippled, Investors are still looking at gold to replace cash and fixed income.”, said precious metals specialists and head of research for the World Gold Council. According to historic records, precious metals prices usually strengthen amid uncertainty and robust demand.
(1) During the 2020 presidential campaign, President-Elect Joe Biden said – “I’m going to get rid of Trump’s $2 Trillion Tax Cut, and a lot of you may not like that but I’m going to close loopholes, … which pushed us into a trillion-dollar deficit.” Biden’s Tax Hike Plan could trigger the higher spending which could offset any additional revenue that comes into the government’s coffer that would continue to keep a lid on US dollar strength.
(2) The Biden administration and Democrats would likely push for an, even more, bigger Covid-19 pandemic relief package for small businesses and consumers. More government spending would likely weaken the dollar a bit further or keep it relatively flat. Gold usually rises when the dollar declines.
(3) Biden also hinted against the further proliferation of fossil fuels and also raising taxes on corporations. It would cause detrimental impact on investment in the U.S. However, raising the corporate income tax rate may not impact the metals business and mining industry as much as other industries, such as insurance or technology. President-Elect Biden plans to spend government stimulus more on solar, wind, Green Energy, and infrastructure would likely increase precious metals demand in the long run.
6. GOLD DEMAND
It is difficult to predict exactly how much and how fast the economy will recover in the future. Economists warn that The United States will remain stuck in a recession and U.S. GDP won’t recover to pre-pandemic levels until 2022. This weakened economy makes gold more attractive and many investors will be looking to the gold sector as a haven amid economic volatility. The U.S. Market research analysts said “People are looking at gold as an alternative currency. For investors who are wary of the dollar, gold also could be a good substitute for bonds”.
Moreover, A global economic rebound could also boost gold prices due to consumers in emerging and developing economies such as China, Russia and India may look to buy more gold. “Consumer demand for gold should go higher as the global economy recovers. About 40% of demand for gold is tied to jewelry sales as well as some industrial uses,” Artigas of The World Gold Council said.
In other developments:
(1) In August 2020, Berkshire Hathaway Inc., headed by CEO Warren Buffett, made a US$563 million investment in Barrick Gold Corporation in Toronto, Canada, one of the world’s largest gold mining companies. “The gold industry itself has done exceptionally well in the last two years” Bristow, Barrick Gold CEO said. Gold experts cheered that “gold is becoming mainstream as popular media outlets investors.”
(2) During the Gold Forum Americas conference held in September 2020, many company executives, analysts, and other market observers expressed their optimism that the precious metals would increasingly play a role in investors’ portfolios. Newmont Corporation (The world’s largest gold mining company) President and CEO Tom Palmer announced “Company has returned more than US$2 billion to shareholders through dividends and share buybacks since January 2019. At current gold prices and with our portfolio, there is a clear opportunity for further returns to long-term shareholders”. “It’s almost a perfect storm in favor of gold right now.”Frank Giustra, a Canadian billionaire and philanthropist and also the founder of Lionsgate Entertainment said.
(3) “Investment demand for gold will likely remain strong”, according to John Reade, chief market strategist and head of research at the World Gold Council.
(4) In a recent precious metals update, Capital Economics forecast the price of gold would climb back up higher by the end of 2021.
(5) According to the September 14th note, James Steel, chief precious metals analyst of HSBC, says he expects “gold to be well supported into 2021 on “the perceived need for a ‘safe-haven’ even in the event of economic recovery”.
Gold and Silver served as a desirable model currency and have been revered for their beauty, store of wealth, and intrinsic value for thousands of years throughout human history.
Historical market data shows Gold stays strong in the high value commodity market and the Price of Gold trended higher for many years. Even though there were occasional drops in gold prices, it always tends to recover after a few weeks or months.
Gold average price in 1920 was $20.67. And Gold average price in 2020 is $1,765.13. Gold price increases 85 times in 100 years.
They have not suffered the boom and bust cycle in turbulent times. They will never default, devalue, or be at risk. Investing in Gold and silver can be a safe and stable option to achieve financial stability and security.
The demand for gold remains strong and it makes gold a reliable store of value and purchasing power. This reputation is not likely to change any time soon. Gold is forever.
U.S. Bureau of Economic Analysis (BEA), National Bureau Of Economic Research (NBER), Bureau of Labor Statistics (BLS), National Association for Business Economics (N.A.B.E), World Bank , World Gold Council, The Wall Street Journal (WSJ), NYSE, Forbes, Bloomberg, Kitco, goldprice.org, National Mining Association – NMA, Center for Disease Control & Prevention (C.D.C), Food & Drug Administration (F.D.A), World’s Health organization (W.H.O), Pfizer, Astrazeneca, Moderna, University of Oxford