Just when the markets were about to enter some stability mode, post U.S elections, breaking news swept the market with immense volatility. Gold prices gained significantly before U.S Elections and dropped also at the same speed after the results were out. But surprisingly it wasn’t Biden’s victory that led to this downfall.
Gold prices dropped nearly $100 on Monday morning after Pfizer and BioNTech announced a potential vaccine for the COVID-19 virus.
The price of gold came tumbling down after an optimistic report filed Pfizer and BioNTech with respect to the efficiency of the COVID-19 vaccines mounting to 90%. The positive news of a possible vaccine that could contain the virus and combat the global pandemic raised hopes which resulted in gold seeing a sharp decline in its price.
Gold prices tumbled over 5 % on Monday, as a corona virus vaccine developed by Pfizer and BioNTech showed a 90% success rate in an interim analysis of its phase 3 clinical trials. Optimism faded quickly however, as traders reassessed the near-term implications, with the global economy facing an imminent threat of another pandemic wave and virus-related lockdown measures. Even if the vaccine is proven successful, it may still take months before it passes all the regulatory requirements and becomes publicly available. Manufacturing capacity, storage and transportation are future challenges too.
Moreover, analysts all over the world as well as at RSBL are warning that the selling pressure appears to be overdone as there is plenty of uncertainty and liquidity in the marketplace to support the precious metal.
And as we all know, the vaccine is not accessible to all right now. It is in its launch mode and hence exiting the market would not be advisable. In fact, when everyone can get a vaccine that is maybe when you want to sell gold, the bullion king of India, Prithviraj Kothari commented.
Moreover, even though the vaccine will be helpful in curbing the virus, but the damage that the virus has caused cannot be undone. World over, economies have suffered and it will take a good amount of time for them to recover.
There is still plenty of uncertainty to support gold’s new regime
In addition, Trump refuses to concede defeat to Biden, mounting legal action against vote counting in states where he lost, adding an element of uncertainty to the political situation in the US. On Monday, Trump’s campaign filed a lawsuit to block government officials from confirming Biden’s victory in Pennsylvania.
After the initial optimism surrounding a possible vaccine receded, traders turned their focus towards a likely stimulus package being announced soon in the US. Biden’s recent victory in the presidential election has raised hopes for a larger corona virus relief package, which has boosted gold prices in turn.
The expansions of central banks’ balance sheets, alongside an ultra-low interest rate environment, have propelled a big rally in precious metal prices this year. This is because gold is commonly viewed as a good hedge against fiat money and a store of value. In the medium- to long-term, however, a slower pace of monetary easing and potential tapering may put gold at risk for a pullback.
- In the near term, many factors will be helpful to cushion the downside for gold prices-
- The need for a fiscal stimuluscontinues in the US
- Second wave of infections continue to hover the EU
- The path to recovery for the EU seems to be fragile
- The monetary environmentis likely to remain accommodative in the foreseeable future to prevent systemic risk
All said and done, Uncertainties surrounding the post-election transition, pandemic, and a tepid economic outlook may also lift appetite for gold.