As the rollout of vaccines is expected to take three to six months, we do not expect the economy to recover to pre-COVID levels until mid-2021. We believe that gold prices will remain volatile in the coming months, and gain strength in the second half of 2021, when inflation kicks-in from the stimulus packages and economic growth. We are raising our base metal price forecasts for 2021 based on positive developments surrounding vaccines. That said, we believe that the recent run-up in base metal prices is an overreaction.

AstraZeneca (LSE: AZN) announced today that tests on its vaccine for COVID-19 returned an average efficacy rate of 70%. AZN is now the third drug company to report positive results. Although Pfizer (NYSE: PFE) and Moderna (NASDAQ: MRNA) have achieved 94%-95% efficacy rates, a major benefit of AZN’s vaccine is that it does not have to be stored at ultra cold temperatures. AZN’s vaccine is also expected to be cheaper. Pfizer has submitted its vaccine to the U.S. FDA for approval. These developments are extremely positive for an economic recovery, and drove base metal prices higher in the past week. Not surprisingly, gold and silver reported losses, as demand for safe haven assets typically rises when there is global economic uncertainty and vice versa.

Following last Monday’s announcement from Pfizer (NYSE: PFE), Moderna, Inc. (NASDAQ: MRNA) announced today that they have also received positive test results (94% efficacy) for their vaccine for COVID-19. Stock markets rallied on the news; the S&P 500 index was up 1.1% today vs 2.6% last Monday. As shown below, six of the seven indices we track are up WoW (orange bars). Four out of seven indices are trading higher than pre-COVID19 levels (blue bars).

Global equity markets rallied today as Pfizer (NYSE: PFE) announced highly encouraging test results (90% efficacy) of its vaccine for COVID-19. The S&P 500 index was up 2.6% today. As shown below, every single index we track is up WoW (orange bars). Four out of seven indices are trading higher than pre-COVID19 levels (blue bars).

We believe that base metal prices would have declined more if inventory levels had not declined. As shown in the charts below, copper inventory levels declined both on the SHFE (Shanghai) and on the LME (London), primarily due to a rebound in activities in China and the U.S. As shown below, manufacturing activities in the U.S. in October were higher than pre-COVID levels.

Last week’s major headline was the surge in new cases of COVID-19 in Europe and North America. The second wave is significantly worse, with most countries reporting record numbers of daily new cases. As a result, global equity markets continued to retreat in the past week. All seven indices we track reported losses. Three out of these seven indices (the S&P 500, SSE Composite/China, and Nikkei 225/Japan) are still trading higher than pre- COVID19 levels. The S&P 500 was down 2.1% WoW. Although inventory levels of copper and zinc on the SHFE (Shanghai) declined, they were up on the LME (London).

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Our commodity price forecasts (unchanged) are shown below. We remain positive on gold as our Q4-2020 forecast is US$1,925 per oz vs the current US$1,915.

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