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Fundamental Gold Report

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Gold report that enables you to quickly respond to the latest fundamental changes on the gold market. Posted bi-weekly, the Fundamental Gold Reports by Arkadiusz Sieroń, PhD will make sure that you stay up-to-date with the latest fundamental buzz. For all gold investors, who want to know the “why” behind gold’s price swings, our gold reports are a must-have.

  • More Vaccines Are Coming. Will Gold’s Decline Be Their Side Effect?

    November 19, 2020, 11:05 AM

    With Moderna’s recent success, more vaccines are coming. Does this mean the end of the story for gold?

    Who offers more? As you probably remember, last week Pfizer announced that – based on the interim analysis – its vaccine is more than 90 percent effective. Two days later, the Russians entered the game. The developers of the vaccine called Sputnik V announced that their vaccine demonstrated 92 percent efficacy in the first interim analysis of the third phase of clinical trials. However, the skeptics say that those results are based on only 20 confirmed Covid-19 cases. But hey, it’s better to not mess with Russians, so I won’t say a bad word about their vaccine!

    On Monday (Nov 16th), Moderna announced that its own coronavirus vaccine trial was also nearing its end, with a 94.5 percent efficacy rate. Most importantly, Moderna’s vaccine requires lower storage temperatures compared to Pfizer’s, making it similar to the standard conditions in the pharmaceutical industry, thereby making it easier to distribute.

    Two days later (Nov 18th) Pfizer released the results from its final efficacy analysis, which indicates that its vaccine is 95 percent effective. This means that only five percent of Covid-19 cases among the vaccine trial participants occurred in the group which got the vaccine, while 95 percent occured in the placebo group. The good news for humankind is that Pfizer’s vaccine efficacy held up across the age spectrum (and also across different characteristics such as gender and ethnicity). In people older than 65 (a high-risk group), the efficacy was reported to be 94 percent. Pfizer will therefore request the FDA’s emergency use authorization very soon, followed by Moderna. That’s great for the world. But what about the yellow metal?

    Implications for Gold

    The positive results from the two vaccines, better than previously expected, have raised hopes for the end of the pandemic. In other words, the positive results from the vaccine trials imply an increased chance of a faster than previously expected economic recovery in 2021. Since the epidemic clearly supported gold prices, its upcoming end means bad news for the price of gold.

    However, after an initial huge drop in response to Pfizer’s initial announcement, the price of gold has somewhat stabilized. As one can see in the chart below, the price of gold plunged from around $1,940 to around $1,860-$1,870 after the first breaking news about the vaccine. But the impact of the subsequent announcements from both Pfizer and Moderna was much smaller.

    Why? Well, although the recent news is great, the distribution of vaccines among the general population will take a few months. Consequently, there will be no herd immunity until at least mid-2021. If everything goes well of course, and the FDA approves both vaccines.

    In the meantime, we’ll have to face the harsh autumn and winter seasons. And I’m not referring to the weather or white walkers – I mean the Covid-19 walkers whose population has recently increased. As the chart below shows, the daily infection rate in the U.S. still remains at about 170,000 cases. This means than more than one million new Covid-19 cases per week. So it’s possible that investors have to some extent shifted their attention from the vaccine to the more immediate threat.

    The progressing spread of Covid-19 will hurt the economy, which is good news for gold. Indeed, although the upcoming vaccines reduce the pandemic-related uncertainty, the story for gold is not over yet. You see, there is still an elevated economic uncertainty. The public debt is ballooning, the monetary policy will remain very accommodative, and inflation is still a present risk (think about all this pent-up demand that could materialize next year). The vaccines will not fix all these problems and they will not undo the economic crisis that hit the U.S. this year and which will leave some long-lasting scars.

    If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports, and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. To enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet, and you are not on our gold mailing list yet, we urge you to sign up there as well for daily yellow metal updates. Sign up now!

    Arkadiusz Sieron, PhD
    Sunshine Profits: Analysis. Care. Profits.

    -----

    Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our Gold & Silver Trading Alerts.

  • Vaccine vs. Virus. Key Battle for Gold

    November 16, 2020, 7:56 AM

    The vaccines will likely arrive – sometime in the future. However, Covid-19 cases are surging now. While there is light at the end of the tunnel, the fall and winter may be harsh. What does it mean for gold?

    Fed Chair Jerome Powell spoiled the fun. It was so good: the election dust settled while Pfizer announced a vaccine breakthrough. And then Powell spoke on Thursday at the European Central Bank’s (ECB) forum, pointing out the risks ahead. In particular, he said that the economy as we know it might be over, and even though it’s recovering, “we’re not going back to the same economy”. In other words, Powell worries about the possibility of the pandemic and resulting economic crisis leaving long-term scars: “the risk is that there is some longer-run damage to the productive capacity of the economy and to people’s lives who have been disrupted by the pandemic”. Not good – the pace of economic growth was already quite sluggish before the pandemic, and now it may slow down further. Or maybe it is good news – for gold.

    Moreover, Powell downplayed somewhat Pfizer’s announcement. He noted that although the vaccine news is great, there remain important challenges and uncertainties about the vaccine’s timing, production, distribution, and the efficacy for different groups. And “with the virus now spreading, the next few months could be challenging that year”.

    Indeed, as the chart below shows, the US epidemiological curve has recently skyrocketed. The number of daily new Covid-19 cases has surpassed 180,000 last week, and although it has slowed down to around 165,000 on Sunday, the number is still extremely high. Even worse is that these are only officially confirmed cases. According to some epidemiologists, they are just the tip of the iceberg, with 70-90 percent of all cases being unreported.

    And the number of hospitalizations is also rising, as one can see in the chart below. The problem is that at the current rate of infections and hospitalizations, the healthcare system will be quickly overwhelmed. In some places, hospitals are struggling to find beds for patients and are stretching their capacity to deliver care. Some epidemiologists even warn that America is entering “Covid hell”, in which a doctor will have to decide who to treat and who dies, not because of the coronavirus, but because of other health-related issues which couldn’t be addressed due to an overwhelmed healthcare system. May it not come true.

    Implications for Gold

    What does this all mean for the yellow metal? Well, Pfizer’s vaccine news is great for the economy and bad for gold, as it can reduce the pandemic-related uncertainty. However, the vaccine is the song of the future and in the meantime, the U.S. will have to face the darkest moments of the epidemic. The current strong wave of infections will hit both the healthcare system and the economy.

    You see, the pace of economic recovery has already moderated. The current huge rise in Covid-19 cases will slow economic growth further in the fourth quarter. So, as investors will observe the progressing epidemic, the safe-haven demand for gold may revive. Moreover, the virus’s offensive means that further economic support is likely to be needed to help the economy. A fiscal stimulus is coming – and it will have to be bigger than previously thought. The additional government spending will add to the huge pile of public debt. Oh, by the way, the U.S. government started the 2021 fiscal year with an October fiscal deficit of $284 billion, an increase of 111 percent compared to October 2019. Therefore, although the upcoming positive news about the Covid-19 vaccine could exert some downward pressure on gold prices, the macroeconomic outlook remains supportive for the yellow metal.

    If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports, and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. To enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet, and you are not on our gold mailing list yet, we urge you to sign up there as well for daily yellow metal updates. Sign up now!

    Arkadiusz Sieron, PhD
    Sunshine Profits: Analysis. Care. Profits.

    -----

    Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our Gold & Silver Trading Alerts.

  • Will Investors Get Vaccinated Against Gold?

    November 12, 2020, 8:48 AM

    Pfizer says that an effective coronavirus vaccine is coming. Does this imply the end of gold’s bull market?

    What a drop! On Monday (Nov 9), the price of gold (London P.M. Fix) plunged almost 4 percent, or 74 dollars from $1,941 to $1,867, as the chart below shows.

    What happened? Well, on that day Pfizer announced a promising vaccine breakthrough, saying that that the vaccine it is working on with German biotechnology company BioNTech, could prevent more than 90 percent of infections. It is, of course, very good news for the world, if proven to be true. We don’t know that yet, as Pfizer hasn’t provided any detailed scientific data, so it’s all based on trust, and the announced results are just interim results – the trial will continue into December. Moreover, it will take some time to make the vaccine satisfactorily safe and widely available (and to convince people to get it). As Christine Lagarde, ECB President, reminded this week, “While the latest news on a vaccine looks encouraging, we could still face recurring cycles of accelerating viral spread and tightening restrictions until widespread immunity is achieved”.
    Hence, although the news is a reason for optimism, it should be a cautious optimism and not euphoria – there is still a long way to go before we return to normalcy (although it might be a ‘new normal’, not a pre-pandemic business as usual).
    Nevertheless, equity investors welcomed the news. The stock indices soared. Well, it’s not surprising, as the prospect of a vaccine is a light at the end of the pandemic’s tunnel. Actually, it’s our only hope for beating the coronavirus and returning to normalcy. The vaccinations would mean that social distancing, lockdowns, and all the sanitary requirements that drag down social life and economic growth would no longer be necessary. The epidemic would be finally over.

    Implications for Gold

    What does the vaccine news imply for gold prices? Does it mean the end of the bullish trend in the gold market? Not necessarily. Of course it’s true that the pandemic greatly contributed to gold’s excellent performance in 2020, and the fact that investors are starting to consider an end to the pandemic is clearly negative for safe-haven assets such as gold.

    However, the upward trend in the gold market started in 2019 (well before the pandemic) due to the dovish Fed’s monetary policy. The pandemic only accelerated gold’s journey north. Actually, gold reacted in a very bullish way not to the pandemic itself but to the monetary and fiscal response to the coronavirus. Therefore, the bull market should last as long as the US monetary policy and fiscal policy remain ultra-dovish, while real interest rates are likely to stay below zero sometime after the pandemic is over.

    What’s important here is that the vaccine news doesn’t significantly change the macroeconomic outlook. Economic growth remains fragile, the central banks will remain accommodative, and the financial stimulus will finally arrive, adding to the already mammoth public debt.

    Please just take a look at the chart below, which shows the number of new Covid-19 cases. As one can see, the epidemic is clearly getting out of control. It will negatively affect the economic growth in the last quarter of 2020, thereby spurring fresh actions of the Fed and the Treasury.

    Surely, the vaccine news did affect the markets. It encouraged more risk appetite, so investors sold some governments bonds, which increased the bond yields as the chart below shows.

    The real interest rates rose, hurting gold prices. However, we are skeptical whether we’re observing the return of interest rates to normalcy. In November the Fed paused, but it’s likely to provide more accommodation in the future, putting downward pressure on interest rates. The same applies to the ECB. As Lagarde said this week, the vaccine news would not stop the central bank from loosening policy in December. Hurray! Hence, from the fundamental point of view, the recent plunge was just a setback, not the end of the bull market.

    If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports, and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. To enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet, and you are not on our gold mailing list yet, we urge you to sign up there as well for daily yellow metal updates. Sign up now!

    Arkadiusz Sieron, PhD
    Sunshine Profits: Analysis. Care. Profits.

    -----

    Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our Gold & Silver Trading Alerts.

  • Biden Is New POTUS. Will Gold Shine Under Him?

    November 10, 2020, 12:12 PM

    We know the results. Biden will be the next president of the United States. Will gold shine under him?

    It was a very close race but we finally know the results: Joe Biden has been elected as the next President of the United States. He got 50.65 percent of nationwide votes, but in some states, he won by just a margin of several thousands of votes. Nevertheless, Biden won 290 electoral votes, so he will probably move to the White House in January. My guess is that the coronavirus pandemic helped Biden score a victory, as older Americans could believe that he will handle the epidemic better than Trump.

    I wrote “probably”, as in some states we do not have yet the results from 100 percent of the state vote count. Moreover, Trump said on Saturday that “this election is far from over” and that he was cheated. Since the current president started challenging the election results this week, recounts in several states are likely.

    However, Biden’s lead in the Electoral College is so large that reversal of the results is rather unlikely, as the recounts would have to reverse in at least two states. So, even if some mistakes or irregularities are found, they don’t have to affect the outcome.

    Therefore, we assume that Biden will be the next POTUS and will assume office at the age of 79, the oldest in history. Meanwhile, Kamala Harris will become the Vice-President, and the first woman, the first Black American and the first American of Asian descent to carry that title.

    In the House, the blue wave didn’t materialize. Although Democrats retained their majority, they lost some seats, as Republicans were able to reclaim several seats lost in the 2018 midterm elections, securing 196 seats in total.

    Now, the key question is what about the Senate? As for now, there is a tie and each party has 48 seats. Control of the U.S. Senate will not be decided until January 5th, when the runoff races in Georgia will take place for both of the state’s seats. Republicans are also expected to win North Carolina and Alaska, but it won’t be enough. If they lose both seats in Georgia, there will be a tie – and then the Vice-President has the final say. For the markets, it would be better if Republicans retained a majority in the Senate, thereby checking Biden’s proposals. In such a scenario, the Republican Senate could prevent any major tax increases or regulatory tightening. Good for Wall Street, but not necessarily for gold.

    Implications for Gold

    However, gold gained after the elections, as the chart below shows.

    Actually, the price of gold did not merely increase – as one can see, it jumped above the crucial level of $1,900, even touching $1,960 on Friday. This is in line with our Thursday’s analysis suggesting that gold could be the biggest winner of these election in the long-term. By that I mean when the dust settles, the price of gold could continue its rally. After all, the financial markets were on the sidelines before the elections, waiting for the results. And remember, Biden will move to the White House in rather bad times, unless somebody likes epidemics. But this is good for gold. You see, the number of Covid-19 cases is steadily increasing, meaning that a larger fiscal stimulus would be needed in the future. Gold could therefore shine under Biden – at least until the macroeconomic outlook radically improves, which is not likely to happen in the near future.

    Having said that, the price of gold plunged on Monday on news of successful Covid-19 vaccine testing. This news is bad for gold in the short-term, but it’s not yet clear that it will damage the long-term fundamentals of gold. Although the vaccine will help to fight the pandemic, the macroeconomic outlook remains fragile, which should support the gold prices. Moreover, there is still a long way to go before any widespread vaccination – and before the real interest rates will rise above zero.

    If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports, and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. To enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet, and you are not on our gold mailing list yet, we urge you to sign up there as well for daily yellow metal updates. Sign up now!

    Arkadiusz Sieron, PhD
    Sunshine Profits: Analysis. Care. Profits.

    -----

    Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our Gold & Silver Trading Alerts.

  • Is Gold the Only Winner?

    November 5, 2020, 7:32 AM

    The elections are behind us. However, the official results are still not definite. What does it mean for gold prices?

    Ladies and Gentlemen, the new President of the United States is… still unknown! The election results are not available, as some states are still counting the votes. The race is very balanced, with few states remaining too close to call. At the moment of writing this report, Joe Biden leads the White House race with 253 electoral votes, while Donald Trump has 213 electoral votes. So, Biden is more likely to become the new POTUS. However, with those few states officially still undecided, Trump could still win. Hopefully, we will get some of the results later today, but it might even take several days to count the ballots in some locations.

    One thing is sure: Trump over-performed polls and expectations in the presidential election, again. What a shame, pollsters! We warned our Readers several times against trusting polls:

    “although mainstream pollsters have corrected some of the mistakes they made in 2016, it’s safe to assume that Trump has better chances of reelection than it is widely believed and reflected in the mainstream polls”.

    Moreover, Republicans also performed much better than expected in elections to Congress. We don’t know all the results yet, but as for the moment, both Democrats and Republicans have 48 seats in the Senate. So, yes, Republicans could still lose the Senate, but that is less likely now than before the elections. They are also on track to pick up a few seats in the House of Representatives. So, while all the focus is on presidential election results, investors shouldn’t underestimate the surprising strength of the Republicans in Congress.

    Implications for Gold

    What does it all imply for the gold market? Well, it’s not easy to determine since we still don’t know the results. However, the most likely scenario is Biden to enter the White House, Democrats ruling in the House, and Republicans maintaining a majority in the Senate, which is actually relatively bad news for gold.

    I mean, the Blue Wave was considered to be the best scenario for the yellow metal. If controlling both the White House and Congress, Democrats could do whatever they want. So, they could boost government spending and public debt and raise taxes, supporting the gold prices. However, if Republicans keep control over the Senate, they will block the worst ideas of Democrats. Thus, the divided power would be better for the economy but worse for the shiny metal.

    However, the probable lack of a blue wave shouldn’t plunge the price of gold. Yes, there will still be gridlock and higher uncertainty, and gold prices may be under brief pressure in the short-term, but the fiscal stimulus will eventually arrive. Therefore, no matter who ultimately wins, gold’s long-term fundamental outlook remains bullish. The coronavirus pandemic will continue to affect the US economy negatively, so both the White House and the Fed will provide more stimulus. The monetary policy will stay ultra-dovish, and the real interest rates will remain in the negative territory.

    Moreover, when the dust settles after the elections, and the uncertainty will become lower, gold may continue its rally. As the chart below shows, the gold price has already increased (after an initial drop). So, maybe the actual winner of the elections is gold?

    Of course, it’s too early to assess with certainty the medium-term impact of elections on the gold market. The volatility could stay with us for quite some time, and the dashed prospects of significant fiscal stimulus could negatively affect the gold market in the short-term.

    However, one thing remains interesting. In contrast to the 2016 presidential election, the gold market swings were much smaller this time. It seems to be bullish news, but, hey, don’t count your chickens before they hatch. So, stay tuned. Hopefully, we will know the more complete election results soon and the new FOMC statement, which will enable us to describe the gold’s outlook with more certainty!

    If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports, and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. To enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet, and you are not on our gold mailing list yet, we urge you to sign up there as well for daily yellow metal updates. Sign up now!

    Arkadiusz Sieron, PhD
    Sunshine Profits: Analysis. Care. Profits.

    -----

    Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our Gold & Silver Trading Alerts.

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