The public health and economic crises posed by the pandemic are a significant worry for most Americans. It is, therefore, understandable why so many are thrilled at news of an imminent COVID-19 vaccine.
But the advent of a vaccine doesn’t mean the nation’s economic woes are on the verge of disappearing. Some experts suggest we might want to lower our expectations by a little. Or even a lot.
A growing chorus of economists believe a global recovery could be years away, even with a vaccine available soon. Their lack of enthusiasm speaks volumes about the economic damage caused by the pandemic. This hesitation was even apparent in a recent statement from Federal Reserve Chairman Jerome Powell, who seemed particularly uninspired by the vaccine news.
“From our standpoint, it’s just too soon to assess, with any confidence, the implications of the news for the path of the economy, especially in the near term,” Powell said last week.
Low expectations for a quick recovery could pose continued challenges for retirement savers determining how best to manage their portfolios. However, these low expectations, including the lack of confidence from the head of America’s central bank, speak to some of the very conditions that appear to have led to value increases in the past for my favorite assets: gold and silver.
I believe gold remains well-positioned to perhaps benefit from a persistent pandemic economy. Based on precious metals’ tendency to do well during economic crises, I would say they have the potential to continue gaining strength for some time in response to ongoing monetary and fiscal stimulus deemed essential to a meaningful recovery.
I’m not the only one who thinks so. Investment banking giant Goldman Sachs recently reiterated its belief that the precious metals bull market remains in full effect. This is despite the now-months-long consolidation taking place in gold and silver, something Goldman fully acknowledges. They say justification for their cheerful precious metals outlook rests largely on an expectation that monetary and fiscal stimulus will continue through at least the near term. We’ll dig into their reasoning in a moment, but first let’s look at comments from other experts who are cautioning that even a vaccine won’t resuscitate the economy for some time.
Axel Weber, economist and chairman of Swiss banking giant UBS, recently told CNBC that he acknowledges reports of a soon-available vaccine are “definitely good news.” Still, he believes we are quite a way 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.”
The way Carl Tannenbaum, chief economist at Northern Trust, put it in a separate interview with CNBC is that a COVID-19 vaccine will not result in “instant stimulus” to the U.S. economy. 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,” he added.
Gold owners might be puzzled that Goldman Sachs thinks the metals bull is still running at all. After all, gold has found itself in a tedious consolidation pattern since August. Over the last 3 1/2 months, gold has backtracked 5% since soaring 62% from December 2018 through the end of July.
However, the sizable challenges to the economy courtesy of the pandemic buttress the investment bank’s belief – expressed in a recent analyst note – that the precious metals bull market will remain intact at least through next year. The bank bases its positive opinion of gold’s potential on the likelihood that fundamental drivers such as unlimited quantitative easing (QE) and record-level deficit spending will remain intact.
As a matter of fact, Goldman Sachs thinks there is a chance the yellow metal could follow the path it took 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,” the bank 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.”
We could still be a long way from putting the pandemic squarely in our rearview mirror. For one thing, infection rates are again soaring and onerous restrictions already are returning in many states. We might as well admit it could be a long time before the economy is taken off Fed and government life support, even with a COVID-19 vaccine. But let’s also acknowledge a potential bright spot in the news – the stated feeling on the part of respected professionals that the fundamentals seen as a possible reason for gold’s success this year could be with us for the foreseeable future.
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