Given the enormity of the public health and economic crisis posed by the pandemic, it’s reasonable to think the imminent arrival of a vaccine represents nothing but good news.But some economists are lining up to say the economic fallout from the pandemic will not disappear with the appearance of the vaccine. They believe the global community still could be years away from recovery even if the vaccine makes its entrance sometime this winter. The bases for their tempered enthusiasm is rooted in the significant logistical challenges associated with making the vaccine available to the global community as well as the tremendous economic damage still being inflicted by the pandemic.
Even in a best-case scenario, then, the economy’s foreseeable future is dicey at best. Financial markets are brimming with optimism right now at news of a vaccine. However, markets are also notorious for being disconnected at times from economic reality. And the reality posed by an impressively persistent COVID-19 pandemic is that the economy likely will be plagued by profound weakness for some time.
The prospect that the nation’s economy will continue to suffer from chronic anemia in spite of a vaccine could be welcome news for gold. It’s likely the metal will benefit from continued monetary and fiscal stimulus originally designed to blunt the pandemic’s economic effects and now deemed essential to a meaningful recovery. Indeed, global investment banking giant Goldman Sachs recently reiterated its belief that the precious metals bull market remains in full effect despite the now-months-long consolidation taking place in gold and silver. The justification for their robust metals outlook rests largely on the expectation for continued pandemic-cued generous monetary and fiscal policy through at least the near term.
Economist: “Recovery Is Losing Momentum…Vaccine Will Not Be “Instant Stimulus”
News that an effective vaccine soon will be in our midst has suddenly and significantly improved the prognosis for the nation’s public and economic health. But some economic experts are cautioning that even with a vaccine in hand, the health of the nation’s economy will remain touch and go for some time to come.
Axel Weber, economist and chairman of Swiss banking giant UBS, recently told CNBC that while reports a vaccine will be available shortly is “definitely good news,” he believes we are still quite a ways off from the global economy returning to its pre-pandemic condition.
“It would be at least a year to go back to pre-crisis levels of GDP (gross domestic product),” Weber said. “It’ll take another year or two to be anywhere near getting unemployment and pre-crisis growth back and so it would be quite a long recovery that we’re facing.”
Separately, Carl Tannenbaum, chief economist at Northern Trust, told CNBC that anyone who thinks a COVID-19 vaccine will result in “instant stimulus” to the U.S. economy is mistaken.Even with a vaccine in hand, he said, further fiscal stimulus is essential to helping the economy recover.
“We still have 10 million Americans that were working in January that are not working today,” Tannenbaum noted. “And those that remain unemployed are seeing a much longer track back to full employment, so they will continue to need a certain amount of support.”
“I think our recovery here in the United States, which is already losing momentum, could be at some risk if we’re waiting for a vaccine to solve all of our problems,”Tannenbaum added.
Goldman Sachs: “Strategic Case for Gold Remains Strong”
Goldman Sachs also recognizes the sizable challenges that still in front of the economy courtesy of the pandemic. Those challenges form much of the basis of the investment bank’s belief that the precious metals bull market will remain intact at least through next year.
Gold is up 55% from December 2018, when it became abundantly clear the global economy was slowing down. The momentum was energized further by a June 2019 Federal Reserve decision to reduce interest rates. And that momentum was sent into overdrive in March of this year, when the Fed announced it would bring back metals-friendly quantitative easing (QE) in unlimited amounts to help stabilize the pandemic-riddled economy.
Since August, however, gold has found itself in a consolidation pattern and actually has lost 5% over the last three months. It’s not unusual for assets in the midst of bull markets to experience periods of sideways movement while their fundamental drivers remain attractive. But some might suggest that any such movement lasting three months is worrisome nonetheless.
Not to fear, says Goldman. The investment bank expects continued good results from gold even as it believes the sideways trading pattern may persist for a little while longer.Topping Goldman’s list of reasons for continued gold optimism is the bank’s projection that inflation will track higher in 2021 due to the volume of pandemic-cued economic support anticipated from both the Federal Reserve and the U.S. government and believed essential by economists in order for the recovery to continue.
Gold owners as well as those still thinking about climbing aboard the gold train might be pleased to learn that Goldman is looking for the yellow metal to perform in a fashion similar to how it ran in the wake of the 2008 financial crisis. From 2008 to 2011, gold surged 160% against a backdrop of highly accommodative monetary policy and protracted economic uncertainty.
“In this cycle, we believe the gold market, at least initially, is likely to follow the same path as after the Great Financial Crisis and grow strongly into the recovery phase of the business cycle as inflation concerns become central to the forecast,” Goldman said in its note. Adding “the Fed appears more willing to tolerate a temporary inflation overshoot,” Goldman suggested that posture could “lead to market participant concerns over the long-term inflation rate and more inflows into gold in order to hedge it.”
It certainly isn’t bad news that an effective COVID-19 vaccine may soon be available. But it appears we could still be a long way from putting the pandemic squarely in our rearview mirror. In the meantime, infection rates are again soaring and onerous restrictions already are returning in many states. Moreover, as some experts are suggesting, it’s going to be a long time before the economy is taken off Fed and government life support, even with a vaccine. That could mean gold’s fundamentals will remain very positive for the foreseeable future – something mega bank Goldman Sachs believes will be the case.