The Strategist

COVID-19 vaccines success lowers investors demand for gold

11/25/2020 - 03:09

Gold quotations declined to July, approaching $1.8 k/oz. This is happening against a backdrop of reduced investment by institutional investors.

In particular, total gold ETF assets fell to a three-month low of 3.39 thousand tonnes at the beginning of the week. Success in developing coronavirus vaccines and strong US economic data is reducing the need for large-scale monetary stimulus, which is lowering investors' demand for protective assets.

Gold quotes on the global spot market, according to Reuters, fell to $1800.1 per troy ounce on 24 November, the lowest level since 14 July.

Gold has fallen by 3.5% since the beginning of the week, while relative to the historic high of 7 August, the price fell by almost 13%.

Prices are returning to multi-month lows as coronavirus vaccines are successfully tested, reducing demand for protective assets. In addition, investors focused on the preliminary November IHS Markit PMI for the USA, which proved to be very strong despite the current increase in mortality and new restrictive measures in many states. The composite index rose to 57.9 points, the highest in four years, indicating that the US economy is recovering rapidly. 

Against this backdrop, investors are actively reducing their investment in safety assets. According to Bloomberg, the total assets of stock exchange funds decreased by more than 10 tons on November 23 and amounted to almost 3.39 thousand tons, having updated at least since August 31. For a fortnight of steady decline, they decreased by more than 60 tons. The data of Emerging Portfolio Fund Research (EPFR) also shows a sharp decline in investor demand for gold.

Estimates based on the Bank of America (based on EPFR data) show that metal-oriented funds lost $4.1 billion over the past week, the highest result in the history of observation.