Gold plummeted $100 immediately after the announcement of the first Covid-19 vaccine. After today’s announcement of a second vaccine, the price dropped $10…and then rebounded into the green.

Has gold developed an immunity to positive vaccine news?

November 16, 2020

Dear Fellow Investor,

Investors seem to have developed an immunity to a Covid-19 vaccine.

This is more than a play on words. Exactly one week ago we had Pfizer’s announcement of the first successful Covid vaccine, and that event initially sent the Dow up 1,700 points and gold down $100.

Both moves were moderated somewhat as the trading day wore on, but the bottom line is that the market reactions to the vaccine announcement were very significant.

Today, not so much.

With the news this morning of a second effective vaccine, the Dow leaped about 400 points in pre-market, and as I write has given up some of those gains.

More to the point of our letter, gold was initially driven down about $25 in pre-market, but quickly rebounded and even poked a bit into the green.

It’s not surprising that investors have discounted the impact of a Covid vaccine and that a second vaccine does little to alter the impact on the markets.

In short, we’ve reached a state of equilibrium. The good news for gold bulls is that this bearish factor has done its damage and the market is now immune to its effects.

And in fact, it doesn’t take much thought to see how this could now be bullish for the gold price.

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Every Sign Points Higher For Gold

Yes, if the Pfizer and Moderna vaccines had failed we would have probably seen gold soar $200-$300 as investors would have bet on even more aggressive stimulus spending and even more accommodative monetary policies.

But the monetary policies and stimulus spending we’ve experienced so far and will see in the near future, regardless of what happens with a vaccine, are still large enough to defy description.

In other words, we’re already too deep into the cycle of currency depreciation to recover.

And here’s the deal: If we get an adequate deployment of vaccines and if the result is a greater-than-expected economic recovery, the oceans of monetary liquidity that have been amassed will begin to flood the global ecionomy.

As I noted last week, monetary velocity plummeted as the U.S. and global economic shut-downs took hold. In effect, all the newly-created money was caught behind a dam.

A recovery will burst that dam, releasing a flood of liquidity to wash over the economy. Combined with supply disruptions due to the shutdowns, this surge in monetary velocity will assuredly spark tremendous inflationary pressures.

Again, as I’ve noted many times, we face a crossroads where either path leads to much higher gold prices.

• A continued economic slowdown will lead governments and central banks to redouble their stimulus efforts and currency creation. For gold, this will obviously be bullish.

• A significant economic recovery will spark the long-feared inflationary cycle, a classically bullish development for gold.

Either way, gold wins.

For my part, I think we’ll see a combination of both scenarios. Given how the markets have become addicted to monetary easing, I don’t see any way that central banks will relent from their policy prescriptions.

And considering the inevitability of a return to economic growth at some level with the deployment of vaccines, I’m confident we’ll see very significant inflationary pressures as growing demand meets restricted supplies.

The bottom line is that the price of gold will almost assuredly be much higher a year or two down the road.

We do well to make sure we’re positioned appropriately.

All the best,

Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference