This has not been an easy year for Wall Street and investors to digest. The coronavirus disease 2019 (COVID-19) pandemic has turned societal habits on their head and displaced more than 20 million workers. It also sent equities to their steepest and fastest tailspin in history during the first quarter, only to see the market rebound ferociously over the past four months. Frankly, no one has any idea what to expect next.
However, one group of investors who aren’t going to complain are those who own physical gold or gold mining stocks. Physical gold has set two consecutive record-closing highs to begin the week, and is now up almost $390 an ounce in just the past six months, according to data from Kitco.
Gold has left the benchmark S&P 500 eating its dust in 2020, and there’s a very good probability that this’ll continue for the foreseeable future. Below you’ll find seven reasons why this gold rally still has very long legs.
1. Historically low global bond yields
To begin with, physical gold is ascending to the heavens because income seekers have a narrowing list of options to generate guaranteed income. Bond yields around the world have been plummeting for more than a year, with some developed countries seeing negative yields. Even in instances where income seekers can generate nominal income from government bonds, the yields are so low that they’re unlikely to outpace inflation levels over the long run. Thus, the most logical store of value for the time being isn’t a bond — it’s gold.
2. Unlimited quantitative easing
Another reason gold can be expected to continue rocketing higher can be traced to the Federal Reserve’s implementation of unlimited quantitative easing. With the Fed, and other major central banks around the world, injecting capital into their financial systems for added stability, we’re liable to see weakness in the U.S. dollar. Since gold and the dollar have an inverse relationship, this ongoing weakness is music to the ears of stakeholders of the lustrous yellow metal.
3. Bullion shortages
Never forget the importance of supply-and-demand economics. If demand outpaces supply, the price of a good or service will increase until demand picks up or is priced out of the market. For months, there have been on-and-off gold bullion shortages. Some of this has to do with investors wanting to add physical bullion as an investment. Another explanation would be that COVID-19 has disrupted production in core mining markets, such as Canada and Mexico. Whatever the reason, demand has been consistently outpacing supply, which places upward pressure on the price of gold.
4. Geopolitical risk
Gold is also a haven investment during periods of heightened geopolitical risk. Although the world is…