Last week the gold futures price advanced by 4.83 percent as traders and investors rushed towards the yellow metal, and posting gains for the seventh consecutive week. Conversely, silver futures gained 15.61 percent.
Gold has appreciated over 25 percent since the beginning of 2020. Several factors are behind this, among them the depreciation of the dollar, which has lost ground for three consecutive months against a bundle of its main competitors. Another factor is the fact that the heavily expected V-shaped recovery might never happen, now that the western governments are reopening their economies and the markets realized that economic recovery may be harder and longer than expected, added to the fact that nominal yield on bonds has fallen to their lowest levels since 2012.
At the moment, there are around 16,207,130 confirmed Covid-19 cases in the world, as well as a death toll of 648,513. The United States leads in the number of infections with 4,315,709 confirmed cases and 149,398 deaths, followed by Brazil, India, and Russia. The World Health Organization highlighted its fears for a second wave of the virus, now that some countries are reporting a peak in the number of cases.
"The recent resurgence in COVID-19 cases in some countries following the easing of physical distancing measures is certainly a cause for concern," commented a WHO spokeswoman recently.
In the United States, 18 states reported a surge in the number of cases last week. Other countries like France, Spain, Germany, and Israel are also reporting an increase in the number of Covid-19 cases.
Several Covid-19 vaccine prototypes are being developed now, around two dozen of them have been approved for human clinical trials according to information released by the World Health Organization. The most advanced prototype is the one that is being developed by the University of Oxford, together with AstraZeneca, which is currently amid the Phase-III trials. The American multinational pharmaceutical Pfizer closed a $1.95 billion with the United States government, and it's expected that the company will release around 100 million dosages by the end of the year.
There is another factor that may be driving traders and investors towards precious metals: the increased risk for hyperinflation.
In order to face the consequences of the sanitary crisis, the western countries' governments have decided to implement fiscal stimulus packages, while the central banks have opted for easing their monetary policy stances, insisting on expanding their Quantitative Easing programs.
For example, the European Central Bank has been expanding its Pandemic Emergency Purchase Program, to the point that now the total monetary stimulus program stands at 1.35 trillion euros. The Federal Reserve has increased its balance sheet from $4.2 trillion dollars in February to $7 trillion in mid-July.
This has driven the money supply significantly, which at the same time is bad news for the fiat currencies, as many perceive that due to those moves risk for hyperinflation increased. As it is known, gold and other precious metals are often taken as a hedge against inflation, so it makes sense that preferences have shifted towards those assets.
Another underlying risk is the possibility of a debt crisis in the future, as countries like the United States are pushing their debt levels to historic highs, now that public spending has been boosted and the interest rates are at historical minimums. The third world countries are not better off, now that Latin America is considered the epicenter of the virus, and Chile, Brazil and Mexico are reporting the biggest increase of debt relative to their GDP this year.
It is possible that the rally in the gold markets will continue, as long as there are surging risks associated with the advance of the pandemic.