Vaccine puts pressure on precious metals, buying opportunity for gold?

The news of a vaccine against the coronavirus turned the financial markets upside down at the beginning of this week. Stock prices soared to record highs, while investors sold precious metals. The gold price fell to $1,852 per troy ounce, the lowest level in almost two months. Silver and platinum also went on sale. Investors are exiting safe havens, as they believe that with a vaccine, the lockdown measures will soon come to an end.

However, the decline in the price of the precious metals presents a buying opportunity for investors. The news reports about the development of Pfizer's new vaccine are indeed encouraging, but that does not mean that the major economic problems have been solved. The first vaccine is not expected to be on the market until the course of next year. So it will be much longer before the whole world has access to a vaccine.

More monetary and fiscal stimulus

Until then, we will remain at the mercy of strict lockdown measures, with all the economic consequences that entails. In the United States, the government is working on a new $1.2 trillion fiscal stimulus program, on top of the more than $3 trillion from the first bailout program. Several central banks have also recently announced new asset purchase programs in an attempt to keep the global economy afloat.

The Bank of England has already announced a expansion of its QE programme, as does the central bank of the Australia. The ECB is also expected to present a report by the end of this year Additional monetary stimulus. As a result of the corona crisis, governments will go even deeper into debt, while central banks are ready to buy some of that debt again.

Flight to gold

This one-two punch between governments and central banks does not bode well for the purchasing power of our money. Especially now that central banks have the policy objective of boosting inflation Formulated As a saver, you have to be careful. Savings no longer yielded interest, but if it is up to central banks, the purchasing power of money is no longer sacrosanct.

Despite a correction of 5% at the beginning of this week, the gold price is still more than 20% higher than at the beginning of this year. Silver is doing even better and is still up 35%. Both precious metals benefited from the monetary and fiscal stimulus measures this year. Even if the vaccine is successful, the pressure on governments and central banks to continue the stimulative policies will remain high.

Banks are turning at

This makes it even more remarkable that some banks are now suddenly making a U-turn. After last Monday's price drop, Deutsche Bank and Citi suddenly lowered their expectations for precious metals. These banks foresee a price drop to $1,600 and $1,800 per troy ounce, respectively. That while Citi previously gave a very positive price target of $40 for silver and even $2,200 for gold.

The corona crisis and the lingering debt problem have yet to subside. On the contrary, the amount of bad loans on banks' balance sheets is expected to increase further. Under these circumstances, gold at $1,850 per troy ounce might be an interesting buying opportunity.

Buying opportunity for gold due to vaccine news

Disclaimer: Holland Gold does not provide investment advice and this article should not be considered as such. Past performance is no guarantee of future results.