Gold has been tricky to trade since the vaccine news from Pfizer and BioNtech was announced. Gold futures fell the most in one day for over 7 years on that news. Why? Well, because if the world gets back to normal then interest rates will rise and the appeal of gold is no longer necessary. Now, on top of the Pfizer news, Moderna’s vaccine has also helped that recovery picture, as it appears to be more effective and easier to store than Pfizer’s. COVID-19 will most likely be well under control sometime next year. It could be as early as the spring of 2021.
So, is gold a buy, a sell, or a hold?
Here are some of the factors to consider:
1. Consumer demand may pick up in the near-term. China and India are the world’s largest buyers of gold. China’s purchases reliably come for the Lunar New Year and prices pick up from the end of December through January. See the stats on that for the last 10 years below:
Gold should pick up at this time as China should be able to celebrate their Lunar New Year. The Golden Week holiday started from October 1 -7 in China and it saw 637 million people travel across the country without any rise in cases. This is an excellent precedent for a ‘normal’ New Year celebration in China, and at least a short-term pick up in gold regardless of the longer-term picture.
2. Global risks still remain; Brexit, US administration gridlock, and the broader impact of COVID-19 on the economy. This can boost gold’s appeal if one of these crisis flares up.
3. Loose monetary policies are set to stay. The Federal Reserve is set to keep rates at their present low levels through to 2023, so rates are not going up in the short term for sure.
4. Some ETF buyers have thrown in the towel on gold and dumped their gold longs. SPDR Gold Shares, the largest ETF in the US, lost 26 tons last week. This was the biggest outflow since 2016. So, some investors are ditching gold on the vaccine news seeing the end of the crisis.
5. 10 Year Treasuries are heading higher and this reduces gold’s appeal.
One area that stands out is a potential month-long buy in gold around December 23 potentially through to the end of January. Investors closing ETFs in large volumes sends out a message. They think the strong rally in gold is done.