PRESS ROOM
Vaccine hopes reduce oil demand doubts, but gold possibly oversold
Tuesday 10th November '20
Yesterday (Monday 9th November), news of a potential vaccine for COVID-19 spurred a risk rally across equities and oil while gold and silver experienced sharp declines. Today, oil prices are still trading higher as fears of demand destruction that had held back the oil complex over the past month are subsiding. Gold and silver, on the other hand, are starting to reverse some of their losses. Yesterday’s moves are likely to have been overdone for these metals. On Friday 6th November, it looked like gold was outpacing other defensive assets like US Treasuries, but on Monday 9th November, with the sell-off in gold, gold looked under-priced relative to Treasuries. If Treasuries are the benchmark, gold has further to catch up. We believe silver will inevitably move in gold’s slipstream. We don’t think that the news of the vaccine changes the immediate challenge for central banks and the fiscal institutions. The period of monetary largess is still likely to take form which we believe is gold price positive.
If the vaccine is capable of speeding up the process of easing lockdown conditions, we believe it should have a beneficial impact on oil demand. However, we doubt the availability of the vaccine on a mass basis in the immediate future. Therefore, the pressure on the Organisation for Petroleum Exporting Countries (OPEC) to act and continue to tighten supply is still there. Their policy meeting at the end of this month will be a key time to demonstrate this.