Believe it or not, the big deal for precious metals this week was not the U.S. election.
It was news that Pfizer and BioNTech's COVID-19 vaccine was over 90% effective in preventing the virus, and would likely be among the first to receive FDA authorization.
Monday was massively risk-on, with the Dow soaring 4% to a new record high, ten-year treasuries yields shot up almost 17% in a single day as investors dumped bonds, and oil was ahead 8%.
Meanwhile, the U.S. dollar index gained about 60 basis points or 0.65%, while higher-beta currencies jumped.
Gold and silver both sold off quite strongly and stayed near their lower price levels.
Naturally, some gold and silver enthusiasts are asking themselves if a vaccine is enough to kill the Covid-19 virus, as well as the precious metals bull market.
And based on the initial reaction of these metals, it's a natural question.
So let's look at the implications.
Is the Gold and Silver Party Over?
The encouraging news everyone's been waiting for appears to finally be here. We're getting a glimpse of light from the end of this long tunnel.
As a result, gold dropped $84 or 4.3%, while silver lost 5.3%, on this news.
But is this a sign of things to come, or a knee-jerk reaction that's just short sighted?
Although highly positive and very reassuring, the truth is we're not going to be lining up tomorrow to get our first of two doses of Pfizer's vaccine.
The road to normalcy, whatever that will mean, is still a long one.
Consider that Pfizer expects to only produce 50 million doses this year, and up to 1.3 billion in 2021. Logistics will be a challenge, as the vaccine will need to be stored at -70 degrees Celsius, which is much colder than other vaccines.
Storage, transportation, logistics, security and prioritization will all be complex. The first to receive the vaccine will be higher risk people and healthcare providers. Two doses, 21 days apart, are required.
Basically, it's going to take quite some time to get this vaccine rolled out and administered even in developed nations. Imagine for a moment what that might look like in developing ones. That could keep travel and other sectors that can't easily implement social distancing from recovering early.
And I've barely scratched the surface of challenges brought on by a vaccine roll-out.
The Solution May Only Exacerbate Things
Realistically, COVID-19 is a long way from being a distant memory.
Restricted movement, quiet cities, empty restaurants, cinemas and gyms, and mostly local tourism. Daily life will continue to trudge forward.
Unfortunately, that also includes the world's ongoing geopolitical tensions. I don't see relations between the two biggest economies, the U.S. and China, cozying up anytime soon, as both sides want to continue "looking tough."
We know the Fed has promised to keep rates near zero through 2023 to support economic recovery. It also vowed to let inflation "run hot" above 2% to make up for years of anemic levels.
Debts and deficits are going to continue to soar. Even with a Republican-led Senate, Biden's still likely to get a $500 billion to $1 trillion "skinny stimulus" bill passed early next year. Though well under the $3 trillion bill passed in May, Goldman Sachs says this would still be nearly 5% of GDP.
Gold and Silver Still Strong
In my view, gold and silver simply had not finished correcting after gold established an all-time record high in August.
Sentiment is a tricky market driver to navigate.
But one thing is fairly clear, gold and silver hedgers (smart money) have not yet flipped to a bullish stance.
They remain cautious right now on gold.
And as for silver, they appear to be stuck in neutral.
If anything, the sell-off may be the catalyst many have been waiting for to help gold and silver establish a bottom, or at least an end to their consolidation.
I believe Pfizer's positive vaccine news may only have dented precious metals for a short time, as it scared some weak hands out of the sector.
Odds are smart money is going to start buying the dips and accumulate gold and silver, as it gears up for the next, inevitable rally.
After all, it's going to take a lot more than a vaccine that kills COVID-19 to also kill gold and silver.
--Peter Krauth
Peter Krauth is a former portfolio adviser and a 20-year veteran of the resource market, with special expertise in energy, metals and mining stocks. He has been editor of a widely circulated resource newsletter, and contributed numerous articles to Kitco.com, BNN Bloomberg and the Financial Post. Krauth holds a Master of Business Administration from McGill University and is headquartered in resource-rich Canada.
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