Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Gold drops on Moderna vaccine news
Ole Hansen
Head of Commodity Strategy
Summary: We maintain our bullish outlook for gold and with that the potential for an even greater performance by silver and platinum. The timing of the next move higher however remains highly uncertain with the prospect for additional vaccine news driving a deeper correction than the "weak" one already witnessed. Today's vaccine news from Moderna is likely to be followed by others during the next couple of weeks.
Gold's ability to navigate uplifting Covid-19 vaccine hopes continues today. Last Monday the price tumbled by more than 100 dollars following the Pfizer/BioNTech news and today Moderne (MRNA) announced its results which potentially looks even more promising. The company said its vaccine was highly effective at preventing corononavirus and had a longer shelf life than expected, thereby reducing some of the challenges involved with storage and distribution.
Gold dropped to a low of $1865/oz after Moderna gave its update on the Covid-19 vaccine. Together with the Pfizer/BioNTech and expected announcement from other pharma companies this week, the latest news will increase speculation that we may see a return tp normality sooner than H2 2021. However, the prospect for multiple vaccines arriving faster than anticipated still raising the risk of a policy mistake which may give the reflation trade a comeback sooner than anticipated. With this in mind we do not see this latest vaccine news as a game changer for gold and maintain a bullish outlook.
The key technical support level remains $1850/oz followed by $1835/oz, the 38.2% retracement of the March to August rally.
Precious metal section from our latest Commodity Weekly:
Precious metals’ post-U.S. election rally proved short-lived as the Pfizer vaccine news helped alter the short-term outlook. The dollar reversed higher and bond yields jumped while “safe-haven” technology stocks took a hit with the market instead buying the Russell 200 grouping of small-cap stocks, seen as a barometer of the U.S. economy and its potential recovery. Gold got caught up in this large rotation towards value from defensive assets as it forced a recovery in U.S. real rates, a key driver for gold.
We believe that the vaccine will help improve to outlook for 2021 but in the short term politicians and central bankers are likely to panic as the coronavirus case count continues to rise. Something that was highlighted by three of the world’s top central bankers after warning that the prospect of a Covid-19 vaccine isn’t enough to put an end to the economic challenges created by the pandemic.
Additional stimulus when the world is on the cusp of a scientific breakthrough on the vaccine front will likely drive inflation expectations higher next year. Not only due to an over easy liquidity situation but equally important a rise in input cost from increasing food and energy prices. With this in mind, we expect a rise in longer-dated bond yields will primarily be driven by rising inflation expectations which should leave real yields anchored deep in negative territory.
In addition to this, we still see the prospect for the dollar to weaken. Such an event will not only reduce the appetite for “safe-haven” technology stocks priced in dollars, it may also support higher EM growth and with that a pickup in demand for jewellery which suffered a 29% YoY decline in Q3 according to the World Gold Council.
In conclusion, we maintain our bullish outlook for gold and with that the potential for an even greater performance by silver and platinum. The timing of the next move higher remains highly uncertain with the prospect for additional vaccine news driving a deeper correction than the “weak” one already witnessed.
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