Gold is the most expensive it's ever been, but analysts warn that a Biden presidency and a coronavirus vaccine could derail its record surge
Business Insider is a fast-growing business site with deep financial, media, tech, and other industry verticals. Launched in 2007, the site is now the largest business news site on the web.
and the countries engaged in a blame war over who is responsible for the coronavirus outbreak. Business Insider spoke to a number of analysts to get their view on what could derail the meteoric rally of the precious metal in recent weeks.A COVID-19 vaccine
FILE PHOTO: Gilead Sciences Inc pharmaceutical company is seen during the outbreak of the coronavirus disease (COVID-19), in CaliforniaReutersThe much sought after COVID-19 vaccine could come before the end of 2020, which may reduce investors need to rush into safe havens like gold.
"If an accelerated vaccine timeline comes to fruition the dark cloud over the global economy would begin to lift and the demand for gold's 'safe-haven' quality would likely weaken," Ma said.A vaccine appears to be pretty close with virtually all of the world's big pharmaceutical firms scrambling to be first to produce a working solution to the virus.
Rising interest rates and bond yieldsThe Eccles Building, location of the Board of Governors of the Federal Reserve System and of the Federal Open Market Committee, June 2, 2016 in Washington, DC.Brooks Kraft/Getty ImagesInterest rates have been historically low with central banks slashing them across the world, to help businesses benefit from cheap money.
But Ma said: "While interest rates should still be very low around year-end, the narrative that they will remain low for the foreseeable future could begin to shift and dull some of the metal's shine."Low or negative interest rates are typically positive for gold prices as it makes holding bonds less attractive, and therefore reduces the opportunity cost of holding gold.
Read more: Kewsong Lee just took full control of Carlyle. 20 insiders reveal how he's already put his mark on the $221 billion private-equity giant — and what it means for the future of the firm.Ross Norman, CEO of MetalsDaily.com, said: "Currently you would lock in a loss of just under 1% if you invested in this gilt-edged asset. Gold has a 93% negative correlation co-efficiency with declining yields and this has spurred over $230 billion in institutional money this year alone."
Norman added: "However, gold has outperformed against this measure suggested that the last $100 of the move is attributable to something else — and that is speculative flows. As such, gold is trading above what we would regard as fair value."
Equities are 'disconnected from the real economy'Xinhua/Wang Ying/Getty ImagesMarket participants spent many of the last months hoping for a V-shaped recovery, but it has become increasingly clear that this is wishful thinking, the latest evidence being
US' record 33% GDPcontraction reported this week.Norman said the stock market has benefitted greatly from a "shot of adrenaline" and due to the impressive monetary injection to save the economy.Read more: Here are the 8 'long-lasting implications' of the pandemic hedge-fund billionaire Seth Klarman lays out to investors in a new letter
"However, measured by the price earning ratio it is clear equities are disconnected from the real economy as they are pricing in a recovery that is very far from certain and in a scale which is unfeasible."Gold is vulnerable to a stock market correction because, just like in March this year, if equities fall so will gold," he cautioned.
Improving geopoliticsThe People's Republic of China flag and the U.S. Stars and Stripes fly along Pennsylvania Avenue near the U.S. Capitol in Washington during Chinese President Hu Jintao's state visit, January 18, 2011.REUTERS/Hyungwon KangOne analyst mentioned that gold prices could move sideways in the run up to the upcoming US presidential election in November.
The Democratic nominee Joe Biden has pledged to reverse many of current President Trump's policies if he wins, which could also remove uncertainty in markets, and hence reduce the demand for the safe-haven asset. "It could be a a speech that Biden makes it could be some conciliatory action on the administration front on international trade," that moves gold, said Guy Benstead, portfolio manager at Shelton Capital.
"Whether the geopolitical landscape shifts in a more positive direction post-November elections remains to be seen, but it is at least a possibility. One of these factors by itself may be insufficient to shift a strong trend, but if a few come together at once the thesis for holding gold would become increasingly challenged," BMO's Ma said.
Partner offer:Disclosure: TD Ameritrade is a partner of Insider, Inc.'s business development team, which is separate from its editorial department. We may receive a commission if you open an account. Read more: Business Insider »
This is a paid message from the Democratic National Committee. It is solely responsible for its content. Gee. Help me out here. Wouldn't a decline in gold prices indicate confidence in the US economy and not a flight to a precious metal to sit out the risk? More of let them die for the economy. Fuck gold. We need Biden and a vaccine in that order.
Incorrect...and a well misguided article. I never wanted to vote for trump but voting for Biden is actually a brave new world vote.....
Peacock reported 10 million sign-ups this week - Business Insider - Business InsiderBusiness Insider is a fast-growing business site with deep financial, media, tech, and other industry verticals. Launched in 2007, the site is now the largest business news site on the web. Interesting & well considered distinction.
Amazon's physical growth shows it sees e-shopping surge as permanent - Business InsiderBusiness Insider is a fast-growing business site with deep financial, media, tech, and other industry verticals. Launched in 2007, the site is now the largest business news site on the web.
Power Line: Insiders and leaked audio reveal new details of job cuts at Exxon - Business InsiderBusiness Insider is a fast-growing business site with deep financial, media, tech, and other industry verticals. Launched in 2007, the site is now the largest business news site on the web.
Marvel insiders describe a lack of diversity in editorial leadership - Business InsiderBusiness Insider is a fast-growing business site with deep financial, media, tech, and other industry verticals. Launched in 2007, the site is now the largest business news site on the web.
Iran's stock market surges past key level to record high, as analysts warn of bubbleIran's main stock index broke through the key 2 million point mark for the first time ever on Sunday, state media reported, amid warnings that the market is overheating. Stock markets worldwide are pumping amidst record unemployment and impending catastrophic recession Literally, literally the first time I've seen a headline that suggested stock market growth was a potential risk. I can't imagine why. Pop
Twitter has shut down former KKK leader David Duke's accountA Twitter spokesman told Business Insider David Duke&39;s account suspension was in line with recently updated policy on tweeting "harmful links." DawsonEJoyce why? Good