Thursday, Dec 17, 2020

Coronavirus vaccines began rolling out this week, boosting optimism that the economy will soon rebound. But as Peter Schiff said in a podcast last month, there is no vaccine for what ails the economy. Even if the vaccine proves effective and governments ease off the draconian policies they have implemented in response to the pandemic, governments and central banks will have to continue stimulus programs and loose monetary policies. That’s good for gold.

Commerzbank sees things the same way, projecting gold’s bull run will continue through 2021 with the yellow metal rising to $2,300 by Q4.

Peter said the problem really isn’t COVID-19. The problem is we’re addicted to the cure — cheap money and debt.

The disease doesn’t even matter anymore. Because even if we get rid of the disease, we’re still addicted to the cure. And the Fed can’t take away the cure without causing an even bigger problem than the initial disease that the cure was meant to cure. … All that debt and all the money printing doesn’t go away even if COVID goes away.”

Commerzbank analysts agree that the extraordinary monetary policy isn’t going to end any time soon. Either governments, central banks, or both, will continue to pump liquidity into the financial system.

We do not expect a change in the ultra-expansionary monetary and fiscal policy despite the upcoming vaccinations. Instead, governments and central banks will continue to be required to cushion the negative effects of anti-corona measures on the economy and society. If the necessary fiscal stimulus measures are not adopted in time due to resistance in the legislative process, pressure on central banks to step into the breach with further easing measures would increase.”

With QE and stimulus continuing, Commerzbank expects gold to push above August’s all-time highs in the coming year. It projects an average price of around $2,000 an ounce in 2021 with a peak above $2,300 in Q4.

Gold has struggled over the last several months despite significant dollar weakness. Vaccine progress has sparked risk-on sentiment leading some to declare the gold bull run over. But even considering the drop from August’s record over $2,000 an ounce, gold has had a strong year. At $1,850 an ounce, gold is up 21% on the year and about 23% from the March lows.

Looking further ahead, Commerzbank sees the gold bull run continuing into 2022. Even as the global economy improves in the wake of the pandemic, it will have to grapple with enormous levels of debt. Meanwhile, the Fed has no exit strategy from its extraordinary monetary policy. Any attempt to raise rates and normalize policy will pop the enormous debt bubble.

Even if, as we expect, the corona pandemic can be brought largely under control in the second half of 2021 through sufficient immunization of the population, the enormously increased public debt levels caused by the corona policy and the inflated balance sheets of central banks will remain in place for a long time to come. The Fed does not intend to change its monetary policy anyway until inflation is slightly above 2% for a longer period of time, and full employment is achieved. Both criteria together have rarely been met in the last 20 years.”

Commerzbank also projects the European Central Bank will keep rates negative “for the foreseeable future.”

As the economy improves, gold jewelry demand should begin to pick up, particularly in China and India, boosting overall demand for the yellow metal. Commerzbank also expects central bank gold buying to continue into 2021.

The arguments in favor of gold have not changed for the central banks at all. The US dollar-denominated bonds held in the foreign exchange reserves hardly generate any positive nominal yields; in fact, the real interest rate on these bonds is almost entirely negative. The euro-denominated bonds even have a negative nominal yield. The price development of gold in this challenging year has also shown that gold offers great advantages as an integral part of foreign exchange reserves.”