Photo: Andrei Rudakov / Bloomberg
The record bullish gold market is facing an existential question following advances in pharmaceuticals this month: what happens to the rally once Covid-19 vaccines start living?
Many see gold as an archetypal refuge whose price is inevitably higher in times of turmoil. By this logic, the beginning of the end of the crisis will be a turning point for the rally. But the precious metal also serves as a hedge against inflation. And with huge amounts of money flowing into the global economy this year, any signs of rising consumer prices could cause investors to go back to the grids, writes Bloomberg.
For most of 2020, conditions are unlikely to be better for gold as cash flow, a weaker dollar and global uncertainty have boosted demand, pushing up prices. The fall in real interest rates in the United States caused higher gains in July and August, eventually sending gold to a record high of 2.0 2,075 per ounce.
Although prices have fallen slightly since then, investors have continued to invest in exchange-traded assets, which at their peak in October invested nearly 900 tonnes of metal this year, more than doubling the final inflow in 2019.
In a few weeks everything changed.
Gold suffered its second biggest drop in seven years on the day Pfizer Inc. reported early results showing that its vaccine was 90% effective.
The ETFs, which were so important to the rally this year, reported a decline for at least six consecutive days, as hedge fund bets were close to a 17-month low on the week ending November 17.
The issue of inflation will be crucial for every opportunity now, not for the first time. Gold broke its previous record in 2011, shortly after the financial crisis, when central banks began their quantitative easing, sparking fears of German-style hyperinflation. But then the bulls were eventually disappointed because inflation was under control.
This time it may be different, says Oliver Harvey, macro strategist at Deutsche Bank AG.
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