In your opinion, will the introduction of a vaccine(s) be a headwind for the precious metals?
Thank you for this question which may be of interest to the Collective. The global economy has experienced a significant shock and millions of people are out of work. The primary way I view the effect of the coronavirus on the economy is as an accelerant. It took trends that have been in evidence for a while and exaggerated them. At the same time, it introduced new challenges which require new solutions.
The demise of brick and mortar retail has been underway for decades and the pandemic accelerated that trend. Accelerations are trend endings so it is reasonable to conclude that companies which survive over the coming couple of years have staying power and have survived the contraction.
Corporations operating without the safety net of cash on the balance sheet has been a feature of the markets for decades too. They continue to be bailed out. It remains to be seen whether the trend of using all available means to buy back shares will be tolerated in the years ahead. At least for now, the number one message coming from shareholder conference calls is resiliency.
The cloud computing/software-as-a-service sector has fared particularly well because the lockdowns have pulled forward sales from years in the future into today. That’s very similar to the panic buying that occurred ahead of Y2K back in the 1990s.
As businesses get back to work, I’ve seen more and more people behave as if they have post traumatic stress. More than a few people freak out when they think people are too close to them. That kind of fear does not dissipate overnight and rational argument will not have an effect on it. That suggests to me that the recovery from the lockdowns is going to be long and hard. It’s going to require significant additional liquidity to animate the number of transactions and to get people out and moving again.
Gold might have done well as a safe haven asset but surety of devaluation of fiat currencies is the basis for a lengthy bull market. We may see some volatility in the price surrounding the announcement of a vaccine but that is only one step in what is likely to be a years-long process of recovery. The clear message then is a vaccine is likely to contribute to renewed weakness in the Dollar because it will throw emphasis back onto how the recovery is going to be paid for.