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Thursday, 13 May 2021 09:25 GMT

Precious Metals Lose Ground Due to Risk Appetite


(MENAFN - Daily Forex) Precious metalsThe last couple of weeks have not been the best for precious metals enthusiasts, as volatility dominated the markets.

So far, gold futures have given up last week's gains, going down by 4.50 percent. Last week, gold attempted to recover, adding 3.82 percent, mainly aided by the fall of the US dollar which fell by 1.92 percent against a bundle of its main competitors. So far this week, the dollar has been recovering from last week's losses, as the US Dollar Index climbed by 0.78 percent. Silver futures have also lost ground this week, going down by 5.03 percent and giving up some of last week's 8.53 percent gains.

The sudden weakness of precious metals could be explained by the optimism that took over the market after Pfizer's announcement of a coronavirus vaccine, bringing up risk appetite and boosting the performance of risky assets such as stocks. Right now, several countries are in negotiations with Pfizer  to secure doses of the vaccine, which according to the company's early data is more than 90% effective.

Precious metals were surging since the pandemic began, as the rise of risk aversion across the markets has been pushing traders and investors towards safe-haven assets. Many also fear high inflation, as international central banks are considering imposing negative interest rates and having balance sheets that are hitting record highs.

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Those fears are now being reinforced by governments' decision to provide fiscal stimulus in order to keep the economy afloat, given the pernicious effects of the restrictions that were enacted to stop the spread of the coronavirus. Because of this, governments are currently piling on record amounts of debt, which could have negative effects in the long run, at least according to conventional wisdom.

In any case, the recent victory of the democratic candidate Joe Biden boosted the hopes for additional stimulus in the United States, which at this point is necessary and would have a positive effect in the short and mid terms. Moreover, the fact that the pandemic continues surging around the world signals that stimulus efforts are not ceasing anytime soon.

As COVID-19 continues to spread, it has already infected around 52,564,762 individuals and killed 1,291,785. The United States is the most affected country, with 10,708,728 total cases as well as 247,398 total deaths, followed by India, Brazil, and France. Many countries are considering an additional general lockdown, while others (like the United Kingdom and Israel) have already implemented it. Sweden, once praised for its unique approach, is now also considering additional restrictions given the recent rise in cases.

Now fears over the logistics of actually distributing the vaccine are taking over the market, which may dwindle the enthusiasm for risky assets. This is already affecting the stock market's performance and could favor precious metals in the near future.

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