The price of gold has slipped further overnight on the news of a third, cheaper coronavirus vaccine could soon be ready for distribution.
The benchmark SP/ASX 200 has continued its upwards march today, with Aussie gold miners among the few who have been left behind.
Source: TradingView, USD price of gold
Some of Australia’s largest gold miners stormed to prominence during the market crash as investors fled to the traditional safe haven of gold.
But with confidence returning to the equities market, what does this mean for gold and gold producers?
At the time of writing, Northern Star Resources Ltd [ASX:NST] is down 6.84% to $13.01 per share, Evolution Mining Ltd [ASX:EVN] has slipped 6.79% to $5.08 and Saracen Mineral Holdings Ltd [ASX:SAR] dropped 6.72% to $4.86.
Is the golden run over?
It might be easy to think we are witnessing the beginning of the end for gold’s stella run.
But such an opinion could be naive and lacking perspective.
It’s true, the price of gold has not enjoyed the news of potential vaccines for the COVID-19 virus, which was responsible for sending many to shelter under the protection of gold in the first place.
However, it wasn’t a global pandemic that cause that pushed the gold price up ~25% in the 12 months from September 2018–2019.
Or a further 20% from 2019–2020.
If you cast your mind back to a time before lockdowns, there was another economic issue causing worry for investors and central banks the world over.
A problem that could now be exacerbated thanks to tremendous government stimulus handed out over the course of the pandemic.
You guessed it — the devaluing of fiat currency.
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It’s a tale of two opinions
As it stands, there are two competing outlooks on where the gold price will head next year, and your investment strategy will depend on which you find more convincing.
A coronavirus vaccine isn’t likely to be globally available until the end of 2021, according to both Moderna and Pfizer.
And there will only be enough to vaccinate about 15% of the world’s population.
VanEck gold portfolio manager Joe Foster said:
‘We’re still going to continue to see the economy struggle [through 2021]. We’ll probably see more stimulus on the fiscal and monetary side and there will be a lot of risks. That should enable gold to stay above the USD$2,000 level for most of the year.’
In fact, VanEck forecast the gold price to hit over US$3,000 per ounce over the next three years, driven by low interest rates and blown-out balance sheets during a period of unfettered inflation.
Conversely, Morgan Stanley analysts are less optimistic about gold.
Morgan Stanley commodity strategist Susan Bates argued:
‘Against a recovering macroeconomic backdrop, further progress towards — and eventual rollout of – a vaccine against COVID-19, and a gradual trend higher in long-dated real yields through 2021, we see downside risks building for gold’s price.’
In which case, the investment bank said it could see a case where the gold price slips back to US$1,600 per ounce.
Regardless of which prediction is correct, gold and gold stocks can still be a great way to diversify your portfolio and hedge against drastic swings in economic conditions. Where investors can get caught up is picking the right gold stock — they can be tricky at the best of times. In our exclusive investor report, we show you how to pick winning gold stocks and what to look out for. Get your free copy here.
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