Commodities on shaky ground as vaccine progress counters surge in virus cases

Commodities, in general, have witnessed a good bull run for the last few months with most trading near multi-month highs.

The latest boost came from signs of progress in vaccine trials for COVID-19, however, the measured gains indicate shaky market confidence. Additionally, market sentiments are weighed down by rising virus cases.

In the last few days, a number of companies have reported progress in vaccine trials. Final results from Pfizer’s COVID-19 vaccine trial showed its shot had a 95 percent success rate and now the company is looking for emergency authorisation. Moderna has claimed their vaccine is 94.5 percent effective while Russia’s Sputnik V vaccine is reportedly 92 percent effective and Sinovac Biotech’s experimental vaccine CoronaVac triggers a quick immune response.

The significant progress made on vaccine front is a positive development, however, there is still much to learn and many barriers to overcome. We need more information on possible side effects of the vaccine as well as the duration of protection it provides. Also, once a vaccine is found and confirmed by regulatory authorities, there will be a huge challenge of producing it and distributing it at a large scale. Meanwhile, there is also a lot of debate over vaccine nationalism as countries are trying to strike deals with companies to get access to a vaccine.

Overall, there is not much clarity on the timeline as to when a vaccine will become available publicly. Meanwhile, the biggest fear is that hopes of a vaccine may make people complacent towards precautionary measures.

Several agencies have expressed their hesitance on being over-optimistic about a vaccine in the near term. World Health Organization’s emergencies director Michael Ryan warned that vaccines will not arrive in time to defeat the second wave of the COVID-19 pandemic and countries battling a resurgence of the virus will once again have to climb this mountain without them. Dr Anthony Fauci, US’ foremost infectious disease expert said that it was okay to celebrate good news on vaccines but warned it’s not the time to back off on basic health measures. Federal Reserve Chairman Jerome Powell said the development of an effective COVID-19 vaccine was good news for down the road but the immediate outlook remained fraught.

Also, progress on the vaccine front is countered by a huge surge in virus cases especially in the US and Europe which has caused authorities to impose stricter restrictions.

On the whole, commodities have generally reacted positively to vaccine progress, however, the gains are unlikely to persist if the virus situation continues to worsen. With no other known measures, countries are referring to lockdowns to limit the virus spread. The longer it takes to control the virus spread, the longer the restrictions will remain in place denting economic activity and thereby growth prospect. Also, while most central banks and governments continue with measures to support their economies from the negative impact of the virus-related restrictions, they are running out of conventional tools.

(Ravindra Rao, VP – Head Commodity Research at Kotak Securities.)

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