The price of gold has seen some wild fluctuations over the past few months. Even today, hopes over a COVID-19 vaccine seem to suppress market appetite. However, it is still far too early to dismiss the coronavirus at this stage.
COVID-19 isn’t Going Anywhere
Dealing with a global pandemic is not something our society is that good at. Only normal, as it hasn’t been required for quite some time now. This is evident when looking at the way things have been handled throughout 2020. First, there was underestimation, followed by disbelief, full blown panic, and now there is the futile hope for a vaccine. Far too many emotions are keeping the financial markets in their grip.
Expecting COVID-19 to simply pack its bags and leave ahead of the holidays is wishful thinking. The second wave of infections – which we hinted at many months ago – is only now starting to ramp up globally. Although there is good news regarding potential vaccines, several trials had to be cancelled due to the negative effect on volunteers’ health. There is a lot of work to be done before all of this will go away, assuming that will ever be the case.
Considering how no single company can provide sufficient vaccines for most nations, it seems unlikely anything will change with COVID-19. More specifically, our best shot has a success rate of “up to 90%”. On paper, that sounds great, In reality, it is insufficient when lives are at stake. Relying on a proverbial roll of the dice where a vaccine is concerned is not something anyone should take likely. Unfortunately, the “hopium” seems to cloud a lot of judgments right now.
Making matters worse is how the virus keeps evolving. In recent weeks, a new type of COVID-19 has been transmitted from minks to humans. As a result, millions of minks need to be slaughtered to prevent a further outbreak. This goes to show there is a lot for scientists to handle. Creating a vaccine may work for some existing strains, but by the time it can be distributed, COVID-19 will have evolved multiple times. Whether any vaccine will still help at that point, is unclear.
Gold Price Won’t be Kept Down
Keeping all of the above in mind, the overall outlook is pretty bleak. Anyone ditching safe haven assets in favor of stocks, fiat currencies, and bonds will face a serious portfolio crash. Safe haven assets will be in high demand again before long, and everything else will bleed value. The pattern that occurred during the first COVID-19 wave will repeat itself, but in a more outspoken manner this time around.
Furthermore, there is the continued monetary support associated with this pandemic. A lot of stimulus packages have been issued globally months ago, With a second wave forcing a second lockdown, more financial support will be required. All of that money has to come from somewhere. For central banks, this is a new license to keep printing unlimited money in the months to come. An unsustainable situation, even under the best of circumstances.
Once the logistical challenges of COVID-19 vaccines come to light, demand for safe haven assets will spark again. It is good to be slightly optimistic, but underestimating the major challenge that lies ahead would be rather naive. Life, as most people knew it prior to early 2020, may never be experienced in the same manner again. A lot has changed, and continues to change while COVID-19 runs rampant.