Covid vaccine strategy must consider need as well as wealth

To defeat the virus, equitable global distribution is vital — but time is running out

Ngozi Okonjo-Iweala

A volunteer receives a potential Covid-19 vaccine during trials in South Africa. A distribution strategy based on needs, rather than ability to pay, is the most efficient way to defeat the disease
A volunteer receives a potential Covid-19 vaccine during trials in South Africa. A distribution strategy based on needs, rather than ability to pay, is the most efficient way to defeat the disease © Reuters

The virus is winning. Global cases of coronavirus continue to climb as the disease spreads into poorer nations with fragile health systems.

The lessons from the world’s previous pandemic are sobering. During the H1N1, or swine flu, outbreak in 2009, rich countries bought up virtually all available supplies of vaccine, leaving poorer nations high and dry.

This time, the stakes are far higher.

New treatments and vaccines could provide humanity with an escape route — but this requires resources to go where they are needed most, since Covid-19 recognises no borders. The disease can only be defeated at a global level. It is in everyone’s interest to ensure that medical products are available to rich and poor alike. Wealthy countries racing to secure early access to vaccines, drugs, diagnostic tests and protective equipment for their own populations must wake up to this reality.

The window for governments to change tack is closing. The world will soon learn if any of the vaccines advancing through late-stage clinical tests are safe and effective. We have only a short time to set up an equitable system for allocation and distribution.

Pursuing a distribution strategy based on healthcare needs, rather than the ability to pay, is the most efficient way to defeat Covid-19, and the best way to protect people in all countries who are still susceptible to infection. It will underpin the global economy and avoid geopolitical tensions inflamed by “vaccine nationalism”.

The go-it-alone alternative would leave people in poorer countries unprotected, extend the pandemic and jeopardise decades of development gains. It would increase the risk of the virus flowing back to wealthier countries, creating more economic shocks. Fresh bailouts might dwarf the $10tn already spent on stimulus packages.

Fortunately, there is a fully costed mechanism for achieving the global co-operation needed. The Access to Covid-19 Tools Accelerator, launched in April, unites governments, health bodies, scientists, businesses, civil society and philanthropists to speed the development and rollout of tests, treatments and vaccines. In three months, it has built a portfolio of products and created an advanced purchasing system to get them to the places they are needed.

ACT-Accelerator offers an exit plan for the worst health crisis in more than a century. It promises to be excellent value for money. Developing the suite of medical tools needed would cost less than a tenth of what the IMF estimates the global economy is losing every month due to the pandemic. The scheme would not only benefit poor countries. All participants would receive guaranteed access to successful vaccines for 20 per cent of their countries’ populations.

At the same time, the world must establish and enforce robust global trade rules for healthcare products. A worrying feature of Covid-19 has been the readiness of governments to ignore trade rules in a short-sighted rush to put their own country first. More than 90 countries have imposed temporary export restrictions due to the pandemic, often ignoring their obligations under World Trade Organization rules.

For now and the future, the multilateral trading system should balance access and affordability for all with the need to protect intellectual property to spur research and innovation. There are positive precedents. During the HIV/Aids crisis of the 1990s, expensive medicines were made available in public health emergencies in developing countries, and the intellectual property rights of patent holders were protected.

Governments face a choice: to invest in a global response by providing the ACT-Accelerator with the $31.3bn it needs for tests, treatments and vaccines, or to stick with domestically focused measures, risking millions of lives and still more economic damage. Public health and trade rules can be mutually supportive. World leaders must act to make that a reality.

The author is chair of the board at the Global Alliance for Vaccines and Immunisation

America’s Coming Double Dip

Soaring financial markets are blithely indifferent to lingering vulnerabilities in the US economy. But the impact of consumers' fear of COVID-19 on pandemic-sensitive services are unlikely to subside, undermining the case for the uninterrupted recovery that investors seem to expect.

Stephen S. Roach

roach119_Spencer PlattGetty Images_covid closures

NEW HAVEN – The double dip is not a dance. It is the time-honored tendency of the US economy to relapse into recession after a temporary recovery. Over the years, it has happened far more often than not. Notwithstanding frothy financial markets, which currently are discounting the nirvana of an uninterrupted V-shaped recovery, there is a compelling case for another double dip in the aftermath of America’s devastating COVID-19 shock.

The daunting history of the US business cycle warns against complacency. Double dips – defined simply as a decline in quarterly real GDP following a temporary rebound – have occurred in eight of the 11 recessions since the end of World War II. The only exceptions were the recessions of 1953-54, the brief contraction of 1980, and the mild downturn of 1990-91. All the others contained double dips, and two featured triple dips – two false starts followed by relapses.

The double-dip does not, of course, come out of thin air. It reflects the combination of lingering vulnerability in the underlying economy and aftershocks from the initial recessionary blow. As a general rule, the more severe the downturn, the greater the damage, the longer the healing, and the higher the likelihood of a double dip. That was the case in the sharp recessions of 1957-58, 1973-75, and 1981-82, as well as in the major contraction that accompanied the 2008-09 global financial crisis.

The current recession is a classic set-up for a double dip. Lingering vulnerability is hardly a question in the aftermath of the 32.9% annualized plunge in the second quarter of 2020 – by far the sharpest quarterly decline on record. Damaged as never before by the unprecedented lockdown to combat the initial outbreak of COVID-19, the economy has barely begun to heal. A sharp rebound in the current quarter is simple arithmetic –and virtually guaranteed by the partial re-opening of shuttered businesses. But will it stick, or will there be a relapse?

Financial markets aren’t the least bit worried about a relapse, owing largely to unprecedented monetary easing, which has evoked the time-honored maxim: “don’t fight the Fed.” Added comfort comes from equally unprecedented fiscal relief aimed at mitigating the pandemic-related shock to businesses and households.

This could be wishful thinking. The basic problem is the virus, not the need for Fed-induced liquidity injections or the temporary support of a fiscal package. Monetary and fiscal measures can temper financial markets’ distress, but they can do little, if anything, to resolve the underlying health security issues weighing on the real economy.

With the US remaining in the grips of the pandemic, the case for sustainable recovery looks tenuous.

While rebounds in production and employment underscore significant progress on the supply side of the economy, these gains are far from complete. Through July, nonfarm employment has recouped only 42% of what was lost in February and March, and the unemployment rate, at 10.2%, is still nearly triple the pre-COVID level of 3.5%. Similarly, industrial production in July remained 8% below its February high.

Healing has been even more tentative on the demand side. That is especially the case for key components of discretionary consumption – notably, retail shopping, as well as spending on restaurants, travel, and leisure. Full participation in these activities – all of which entail face-to-face human contact – implies health risks that most of the population is unwilling to take, especially given elevated infections, the lack of robust therapeutics, and the absence of a vaccine.

To put the pandemic’s impact in perspective, consider that transportation, recreation, restaurants, and accommodations – the most COVID-sensitive segments of consumer demand – accounted for 21% of total household expenditures on services in the first quarter of 2020, before the pandemic hit full force. Combined spending on these categories plunged at an 86% annual rate in real (inflation-adjusted) terms in the second quarter.

The monthly data through June underscore the lingering headwinds from these important segments of discretionary consumption. While combined consumer spending on durables and nondurables bounced back to 4.6% above pre-pandemic levels (in real terms), household spending on total services – by far, the largest component of total consumption – has recouped only 43% of its lockdown-induced losses.

On balance, this points to what can be called an asynchronous normalization – a partial recovery that is drawing greater support from the supply side than from the demand side. The US is hardly unique in this respect. Similar outcomes are evident in other economies – even China, whose state-directed system is much more effective at command and control of the supply side than it is in influencing the behavioral norms shaping pandemic-sensitive household consumption on the demand side.

But the asynchronous normalization of the US economy is very different in one key respect: America’s abysmal failure at containing the virus not only underscores the lingering fears of infection, but also raises the distinct possibility of a new wave of COVID-19 itself. While there has been a reduction in the incidence of new cases over the past month, the daily infection count of nearly 48,000 in the week ending August 20 is more than double the pace recorded in May and June.

Together with a death rate that has averaged a little more than 1,000 per day since late July – and projected to remain at that level for the rest of the year – this elevated pace of infection takes on even greater importance as a predictor of what lies ahead. Consumer fears – and their impact on pandemic-sensitive services – are unlikely to subside in such a climate and could well intensify if a new wave hits.

Therein lies the case for a double dip. Partial and asynchronous normalization in the aftermath of the worst economic shock on record signals lingering vulnerability in the US economy. And failure to contain the virus underscores the distinct possibility of aftershocks. This is precisely the combination that has led to previous double dips. Yet frothy financial markets are wedded to the narrative of a classic V-shaped recovery. The rhymes of history suggest a very different outcome.

Stephen S. Roach, a faculty member at Yale University and former Chairman of Morgan Stanley Asia, is the author of Unbalanced: The Codependency of America and China.

Five Unanswered Questions

Germany Faces Fresh Corona Challenges As Fall Approaches

The number of coronavirus infections is increasing in Germany, and worries are growing that it will spike even higher once people move their lives back indoors in the coming months. With levels different in each state, there is disagreement over a common national response.

By Matthias Bartsch, Sven Becker, Markus Feldenkirchen, Silke Fokken, Florian Gathmann, Veronika Hackenbroch, Dirk Kurbjuweit, Veit Medick, Martin U. Müller, Lydia Rosenfelder, Cornelia Schmergal, Ansgar Siemens und Gerald Traufetter

German Chancellor Angela Merkel watches carnival celebrations in 2019, back before the pandemic.
German Chancellor Angela Merkel watches carnival celebrations in 2019, back before the pandemic. Foto: Kay Nietfeld / dpa

There have always been people who could celebrate carnival for several months and then chat about it for the rest of the year to tide them over until the Mardi Gras festivities begin again.

They live in the Rhineland and in southern Germany, where carnival traditions are strong.

There’s less enthusiasm for the celebrations in northern Germany, where the tradition isn’t widespread.

But the coronavirus this year has ensured that issues like carnival celebrations are being discussed all across the country.

The pandemic got its first major foothold in Germany in February, courtesy of a local carnival party in the Heinsberg district in the state of North Rhine-Westphalia.

Now, there’s already talk of the upcoming carnival season because it is scheduled to begin on Nov. 11, and, with the cooler autumn weather, many of its parties are held indoors.

People also typically drink copious amounts of beer at the parties. And after a few drinks, people often begin to ignore social distancing. German Health Minister Jens Spahn even went to the Münsterland area in the state to discuss the problem with restaurant and bar owners. Ultimately, he recommended that this year’s upcoming carnival, which culminates with millions of attendees at mass parades on Shrove Monday, be cancelled.

Given the popularity of carnival in Germany, the recommendation wasn't particularly well-received. It would be the second cancellation of a major event adored by millions of Germans, following Munich’s internationally beloved Oktoberfest, which will not take place this year.

The debate over the correct policies for containing the coronavirus is heating up again in Germany. After the federal and state governments demonstrated poor preparedness for the risks that came with this summer’s vacation season, they will have to do a better job in the fall.

Germany’s plan to provide coronavirus testing for people returning from summer vacations in other countries was introduced too late and ultimately ended in chaos, particularly in Bavaria.

Once the temperatures start to drop as fall begins, celebrations held inside are likely to pose a considerable risk.

Worrisome Dynamics

The situation is getting increasingly tense right now. Last Thursday saw the highest number of daily coronavirus infections seen since the end of April, a total repeated on Saturday. "The number of cases is still such that the health system can cope with it," said Spahn. "What is worrying are the dynamics."

Some state governors – Malu Dreyer (of the center-left Social Democratic Party, or SPD) from Rhineland-Palatinate and Tobias Hans (of the center-right Christian Democratic Union, or CDU) from Saarland, for example – called for a meeting with Chancellor Angela Merkel that is now set to be held on Thursday.

But that kind of meeting only really makes sense if it can deliver results and not just squabbling. It’s also an open question whether it can succeed given that the rates of infection vary so much between the different states.

In the eastern state of Thuringia, which has so far escaped relatively unscathed, politicians are calling for a further loosening of coronavirus measures – a step that Hans can’t imagine taking in Saarland, where the rate of infection is relatively high.

"We must continue to be vigilant and observe basic rules of social distancing and hygiene in our daily lives," concurs Dreyer in neighboring Rhineland-Palatinate.

There are five corona-related issues that are heading up the list of concerns for politicians in Germany as summer holidays come to an end and school begins.

Here’s an overview:


It's not only carnival that Health Minister Spahn has in his sights, but also all larger events and family celebrations where corona rules are quickly forgotten after a few beers. In recent days, he has been warning that celebrations with 150 guests could become spreader events. In his youth, Spahn waited enough tables at weddings to know what he’s talking about.

He’s not interested in a blanket policy. Other events are different. His ministry believes that different numbers of people could be conceivable at Germany’s famous annual Christmas markets than at carnival parties and that the venue and the character of the event are the decisive factors. Spahn says he wants to share his ideas with state leaders.

So far, the maximum number of participants allowed at events is an issue that has been decided by the individual states. Bavaria only permits a maximum of 100 guests at private celebrations in indoor spaces, whereas Brandenburg allows up to 1,000. Dreyer has called for the different states to get as close as possible in harmonizing their policies.

German Health Minister Spahn: "What is worrying are the dynamics."
German Health Minister Spahn: "What is worrying are the dynamics." Foto: Florian Gärtner / / imago images

In a conference call of the Health Committee in the federal parliament last week, Spahn pleaded for the cancellation of the entire carnival season this year. "I simply cannot imagine carnival this winter, in the middle of the pandemic," he said, according to other participants in attendance.

Spahn hails from North Rhine-Westphalia, where many of the main carnival celebrations take place in cities like Cologne and Düsseldorf, and his comments didn’t go over well with the state chapter of his party. State Health Minister Karl-Josef Laumann, likewise of the CDU, believes Spahn is premature with his appeal. He first wants to wait and see what impact people returning from vacation and the start of the school year has on the infection rate.

Laumann also doesn’t think much of stricter guidelines for family celebrations. He says he doesn’t believe the state should be extending its authority into people’s living rooms. "I don’t see the need,” he says.

There has also been resistance in other states. "We shouldn’t operate on a basis of fear again,” says Bodo Ramelow, the state governor of Thuringia with the Left Party. "That doesn’t really help. It’s even dangerous in my opinion. I think it’s totally wrong for carnival to be cancelled everywhere. I want to find ways to make carnival possible for Thuringia. We will have to find a strategy together with carnival organizers to allow us to celebrate and not cancel everything from the get-go out of fear of the apocalypse.”


The recent testing disaster in Bavaria is even bigger than previously thought. State Governor Markus Söder of the Christian Social Union (CSU), the conservative sister party of Merkel’s CDU, boldly announced mass testing for people returning to the state from vacations at autobahn and airport sites. But not all those who have tested positive have been informed.

DER SPIEGEL has also uncovered an additional problem at the Munich Airport. Some airlines have been trying to figure out for several days what to do with so-called "exit cards” that passengers from risk areas have to fill out on the plane and are intended for the health authorities. They can be used to determine what seat a passenger was sitting in, whether they have obeyed the quarantine requirement and whether they were tested for the coronavirus.

One major airline confirmed that it has tried several times to find out from the responsible State Office for Health and Food Safety what exactly should be done with exit cards after landing in Munich. In vain. 

The airline says calls and e-mails have gone unanswered. According to an industry source, the problem still hadn’t been clarified by the middle of last week. The authority didn’t respond to a request for comment from DER SPIEGEL and nor did the Bavarian State Ministry of Health and Care. A spokesman for the Munich Airport says it is unaware of the facts relating to the situation and suggested contacting the two government agencies. At this point, it remains unclear just who is taking care of important passenger data.

In Munich, thousands of exit cards from Lufthansa or Turkish Airlines are likely to have been left lying around. And without the cards, it’s not possible to determine if people illegally skipped getting tested for the coronavirus after landing.

Another problem is the different rules for the tests. Bärbel Bas, a health policy expert and the deputy chair of the Social Democrats’ party group in parliament, says, "The way testing is being done in Germany has become very confusing. Different rules seem to apply in each state and each health department. It’s difficult to identify a strategy any longer. Can a child with the sniffles go to daycare? Does the child have to stay home or does it have to present the results of a test?"

Nurses can’t get tested until the health department orders the test, but those returning from a trip can easily get tested at the airport. She says that testing capacities are limited and that the priority should be placed on schools and medical staff. "The federal government, the states and the chancellor need to sit down together and decide on a uniform testing strategy," Bas says.


On Friday evening last week at 6:33 p.m., the Bavarian State Office of Health sent a "product warning" to several authorities and ministries in the state, including health and judicial agencies. It was about the "precautionary barring" of protective masks that the state had procured for medical practices and the Technical Relief Agency (THW), among others.

A public testing site for the coronavirus at the Cologne-Bonn Airport in Germany
A public testing site for the coronavirus at the Cologne-Bonn Airport in Germany Foto: snapshot-photography

In the e-mail, an employee at the state’s central warehouse for pandemic supplies informed people that the use of masks from six Chinese manufacturers would be blocked until further notice "due to missing certificates.” In question were Chinese KN95 masks, which are roughly equivalent to the higher-quality FFP2 respirator masks. Products from another Asian manufacturer was also investigated for the State Office of Health.

The investigation found that, "The test samples didn’t meet the requirements in every respect."

The authorities stopped further distribution and warned against using the masks that had already been distributed.

For now, the masks will not be destroyed. They will instead be kept as "evidence” in "legal proceedings” that have been filed.

The supplier of the masks is a company called F&E Protective in the city of Passau. The company’s head, Michael Bogner, stepped in to help the state with assistance from German Transportation Minister Andreas Scheuer of the CSU.

The two knew each other from Scheuer’s constituency in the state. But in its reporting, DER SPIEGEL brought to light the fact that 11 million masks intended for the federal government turned out to be "junk,” as Bogner admitted in April. He says this led to delayed deliveries.

Now, he has been forced to admit that there have also been problems with the goods that were intended for the Bavarian state government. After a partial delivery, it was determined that the masks "couldn’t be closed 100 percent at the chin.” "Of course” the company would take back the delivery, he said.

A spokesman for the Bavarian Health Ministry explained events as such: The state ordered a total of 3 million respirator masks from F&E Protective, and they were delivered in May. The "required certificate” had not been included in the final partial shipment of 14,000 masks, the ministry said. This prompted the State Health Office to "arrange for the masks to be tested by a testing laboratory.” The tests found that the masks didn’t meet the requirements. The ministry left open the question of whether the millions of masks that had previously been delivered by the Passau company might have had any defects.

Of course, that won’t increase trust in masks, which have become an important symbol in German policies aimed at containing the virus. Or in crisis management by Söder, who is emerging as a leading contender to run as Merkel’s successor as the conservatives’ chancellor candidate.


A week ago Tuesday, the Chancellery announced that ventilation will play a major role in the coming weeks. The Labor Ministry, which is responsible for occupational health and safety, has been ordered to review the opportunities presented by technologies for air ventilation and purification.

At the end of July, the ministry organized a workshop with experts. But participants report that the findings of the meeting had been sobering. Modern air filtration systems could contribute to reducing the aerosol problem, they found, but they would not provide a complete solution.

The Labor Ministry is now drafting recommendations for the Chancellery and other ministries. In them, they recommend increasing the frequency of maintenance on ventilation systems before the cold season begins this autumn. A federal and state program is also being discussed for the installation of modern filter systems that effectively reduce aerosols.

Ventilation is also a problem for schools. "The problem of aerosols being spread in overcrowded, poorly ventilated rooms remains completely unsolved,” says Heinz-Peter Meidinger, president of the German Teachers' Association.

Teachers have been instructed to air out their rooms regularly to allow fresh air into the room and reduce exposure to aerosols. But how? "In many schools, for safety reasons alone, windows on the second and third floors can only be opened partially. No one knows what’s going to happen once the cold season begins if the windows can’t be left open for hours at a time. That's when the real action starts."


Last week, Dutch Prime Minister Mark Rutte announced he would reduce quarantine times in the Netherlands from 14 to 10 days. That decision could also have ramifications for the German debate on the issue.

Currently, Germany has a 14-day quarantine rule. Anyone returning from a COVID-19 risk area and cannot produce certification of a negative test result or had close contact to an infected person has to go into "self-isolation” at home under Germany’s Infection Control Law.

But most COVID-19 victims are no longer contagious one week after the onset of symptoms. The incubation period (the time between getting infected and the start of symptoms) can sometimes last two weeks, but it is usually much shorter, only a few days. The question now is whether 14 days is the right period for quarantine.

Bavarian Governor Markus Söder together with his state's Health Minister, Melanie Huml: Problems with testing in Bavaria have been bigger than previously believed.
Bavarian Governor Markus Söder together with his state's Health Minister, Melanie Huml: Problems with testing in Bavaria have been bigger than previously believed. Foto: Peter Knefel / dpa

Strictly speaking, the local health authorities determine the duration on their own. But the two-week quarantine has become the national standard since the Robert Koch Institute (RKI), the country’s disease control center, established it in a recommendation it issued on Jan. 22.

However, experts like prominent Berlin virologist Christian Drosten and SPD health policy expert Karl Lauterbach have been calling on RKI to reduce its recommended period of quarantine times from 14 to seven days. According to the latest findings, the longer quarantine period no longer makes sense. It would both relieve the health authorities and lead to increased acceptance of the quarantine policy by the populace.

Like Lauterbach, Hamburg Mayor Peter Tschentscher is a Social Democrat and also studied to become a doctor. But Tschentscher strongly disagrees with him on the issue of self-isolation. "I don’t believe in relaxing the quarantine requirement,” he says. "They are medically reasoned, so that we’re on the safe side."

But what is the safe side of the coronavirus? It’s the old problem.

RKI is currently on Tschentscher’s side. Officials there note that some studies have also found longer incubations periods, with five to 10 percent of infections occurring 14 days after the person spreading the contagion contracted it.

"As such, there is still a residual risk after a quarantine period of 14 days, but the residual risk in the event of a reduction would be considerable,” RKI argues. The experts thus see "no strong argument” for deviating from the 14-day period, which is also what the World Health Organization recommends.

Chancellor Merkel and the state governors will have plenty to discuss this week. Crisis policies seemed to lack a focal point in recent weeks, with politicians on their summer recess and a lack of such meetings. They used to hold regularly scheduled meetings, but they were suspended following a sharp drop in infections. There’s a strong case for recommencing those meetings now in light of the lack of consensus on just about every question.

"I advocate a stronger role for the federal government," says Lauterbach. He says the states regained their decision-making authority during the more pleasant phase of the easing of the lockdown. "Now that the second wave is coming, the governors are realizing that their autonomy is also borrowed time."

Thuringia Governor Ramelow views things differently. He advocates a minimal federal role.

"If there is one thing that needs to be regulated uniformly nationwide, it is the strengthening of the public health service,” he says. If we can manage joint health policies, then we would be pleased to decide on them together. But just because somebody gets nervous, doesn’t mean we all have to go into alarm mode."

Governor Dreyer, for her part, can imagine a uniform upper limit on the number of participants at events, but not a blanket ban on the carnival festivities this winter and spring. She also favors individual state policies on this issue.

There does, however, seem to be at least one minimal consensus. "A lockdown like in March is out of the question and impermissible," says Thuringia Governor Ramelow.

What's Driving Gold, Silver And What's Next

Peter Krauth

Gold and Silver will head higher, but not before more consolidation, which is necessary to a healthy bull market.
Gold mining is becoming more costly and more challenging.  Along with a lack of new major discoveries, that bodes for higher prices ahead.
The near-term technical picture suggests more time needed to work through this correction.
Gold's retreated from a record high above $2,000, and silver's off its own seven-year highs near $30.
Is that cause for concern? I doubt it.
These have been dramatic surges to new levels, brought on by a combination of low interest rates, historic money-printing raising the specter of inflation, a softer US dollar, and of course a global pandemic.
But that doesn't mean gold and silver have to continue higher in a straight line.
Instead, these gains have been so strong that a period of retracement and consolidation are not only expected, they're crucial to the continued health of this precious metals bull market.
There are several fundamental drivers that will help keep gold and silver pushing higher, which I'm going to detail for you below.
Then we'll look at these metals' prices from a technical perspective to gauge what to expect next over the near term.
Gold's Fundamental Drivers
Mining gold has never been more expensive. It's possible that costs will drop for 2020 as demand for oil has retreated, but all kinds of related goods and services that go into gold production have gone up with pandemic surcharges.
Via the Wall Street Journal:
A higher cost of production will push gold prices higher. The metal is not likely to ever be produced at a loss and, if it is, it won't be for very long.
Gold exploration budgets continue to shrink on a global basis, as gold miners suffer from recency bias. They need to see gold at its current high price for an extended period before committing more funds to find more gold.
That also pressures junior gold explorers. They've only started to enjoy a more buoyant market to raise money in the past year as gold prices have come back to life.
S&P Global Market Intelligence recently reported the industry has suffered a decade of underperformance for gold discoveries.
Major gold mines are being depleted, and there is a dearth of new discoveries being made to replace mined ounces. Those being found are lower in grade, meaning more effort is required to extract an ounce of gold.
This is all pushing explorers and miners into increasingly risky jurisdictions, which ultimately is likely to translate into higher costs as well.
While these factors all point to higher long-term precious metals prices, we still need to understand their recent action to gauge what to expect in the shorter term.
Precious Metals' Technical Picture
We can see from the gold price chart that the correction which started in August after gold peaked near $2,070 is not likely over.
Gold's RSI and MACD momentum indicators confirm the current downward trend. Initial support is likely to be around the 50-day moving average near $1,875. After that we're looking at the $1,800-$1,825 level, which is where the overhead resistance in early July meets with the rising support (green) line.
Meanwhile, GDX as a proxy for gold stocks shows a similar correction, with its RSI and MACD both confirming the ongoing correction.
For GDX, initial support is likely around the 50-day moving average near $39, then $37 which was support in mid-July and overhead resistance in mid-May.
As well, the Gold Miners Bullish Percent Index remains at an elevated level.
This indicator typically needs to get below 30, then turn upward to get a bullish signal for gold stocks.
That's clearly a ways lower from the current level of 75. It suggests we need to see a considerable drop in sentiment for gold stocks before we see a Buy signal.
The technical picture for silver is similar to gold's.
Silver's downside targets are previous resistance at $24.50, $23, then $20.
Comparing the performance of silver stocks versus silver, using SIL and SLV, reveals some interesting insight.
In early August, when silver peaked, the silver stocks only moved marginally higher. That was a strong indication that silver was likely putting in a near-term peak.
Silver stocks, like gold stocks, are in a correction phase.
If SIL breaks down below $45, first support is likely to be at the 50-day moving average of $42.75, followed by $40 then $37.5.
In my view near term action for precious metals is likely to remain weighed down. I also think we could see some strength in the US dollar.
The US Dollar Index trended further downward from late July. Yet that's when the RSI and MACD started showing positive divergence they've been trending upwards since.
Meanwhile, the "smart money" Commercial Hedgers appear to be betting the US Dollar has little downside, and probably some reasonable upside ahead.
To recap, the longer-term view for precious metals remains bright. The lack of sizable gold discoveries, coupled with rising costs and lower grades bodes for much higher prices.
But the near-term technical picture continues to point to lower prices or, at best, a consolidation near current levels.
I still see gold reaching for $2,200 this year and silver to edge towards $34.