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Home » Vaccines and gold, how will it unfold?

Finally. The vaccine has arrived in Malaysia! Finally. We can all start to imagine our lives one day returning to a semblance of normality. Finally. We can look forward to an end to this exhausting stop-start cycle of MCOs that was imposed to control the number of infections.

We are now at the beginning of the end of this nightmare that has affected so many people and has taken so many lives. But… we are not at the end yet. We are only at the beginning of the end. How 2021 unfolds not just in Malaysia but also in the region and globally will have a material impact on all of us living here.

I have no doubt that 2021 will be an economically bumpy journey from vaccine to vaccination. Even if our government’s vaccination strategy works to plan – it would not surprise me if we continue to experience the stop-start cycle of more MCOs. In reality, it could be many more months before any vaccine is administered to enough people to ease the need for lockdown measures and the authorities will rightfully try to balance between public health and the health of the economy.

In the real economy…

It will take time for owners and managers to get over the psychological traumas of the last year and to feel confident that things are going to get better in the foreseeable future. This means that many businesses will likely be slow to employ back staff or to make more investments. The stock market, on the other hand, will have priced in the economic recovery and may, therefore, be at risk from disappointing news like further lockdowns.

So how about gold?

Most expect gold to lose its shine as vaccination roll-out accelerates and economies recover around the world. That is only true if the pandemic was the only challenge that the world faces. But unfortunately it is not the case!

1. Financial bubble

Many experts believe that we are in the middle of a bubble – even if it is a rational one that has been fuelled by cheap money from central banks. As recently as last week, the fear of reflation or inflation spooked stock markets as investors considered what would happen when the liquidity-led momentum in the markets recede and markets start to reflect the reality on the ground.

2. Geopolitical tensions

Another factor is that geopolitical tensions such as US-China relations are unlikely to de-escalate in the near future. The uncertainty will push up investment demand for relatively safer investments like gold.

3. US budget deficit

Then there is the US Gold is often inversely correlated to the dollar. The already sizable U.S. budget deficit is about to get even bigger with the US$2 trillion stimulus package. The gaping holes in the US budget and current account coupled with the US Fed holding interest rates steady near zero will likely keep the US$ weak and gold strong.

And finally, I have always believed that we should use gold as a form of ‘insurance’ policy against bad things happening that will affect our savings and investments. This holds true as much today in a world where the end of the pandemic is in sight as it did in 2020 when the pandemic hit us. Just as you would continue to have insurance for your health regardless of your health, so you should also continue to hold gold as insurance for your wealth regardless of the investment environment.

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