By Sean Williams
The broad-based S&P 500 hit a fresh all-time closing high on Friday, but you'd hardly know it given how volatile the stock market has been over the past year and a half. We've had three major swoons (last summer, the beginning of 2016, and post-Brexit) in which U.S. stocks were clobbered, only to see the indexes regain their losses and then get stuck in a holding pattern once again.
But this has not been the case for physical gold, which has been seemingly unstoppable since the beginning of the year. After closing at $1060.90 an ounce on Dec. 31, 2015, physical gold has rallied more than $300 an ounce to close at $1,365.40 as of Friday, July 8. That's a gain of 29% for you math-phobic people.
The year-to-date gains for miners that produce gold have been even more incredible. Of the 28 gold-mining stocks with a market valuation of at least $300 million, every last one is higher for the year and outperforming the S&P 500. What's more, 20 of the 28 have at least doubled, with 10 of the 28 having tripled in value (or more). We don't say this often, but you could have literally thrown a dart at gold miners in 2016 and picked a winner.
Three reasons why $2,000 gold is a real possibility
Yet these gains are not simply occurring by chance. There are genuine forces behind gold's ascent that could keep it plugging higher. While I won't forecast a specific timeframe, I am willing to make the bold suggestion that in the near-to-intermediate-term, physical gold prices could very well hit $2,000 an ounce. This would present upside in spot gold of another 46%, which in turn could mean even bigger gains for mining companies that've been cutting costs and boosting production in only their highest-yielding mines.
Here are three reasons why my confidence is growing that $2,000 gold is a real possibility and not just some white noise you hear on an infomercial late at night.
1. Declining global yields
If I were ranking these reasons in order of importance, I can't overstate enough just how big a deal declining global yields are for physical gold.
Think about it this way: if you had a choice between a near-guaranteed debt instrument that was yielding 5% and a physical store of value that paid no dividend, which would you choose? More often than not, most investors are going to go with the debt instrument, because there's a high opportunity cost to giving up a near-guaranteed 5% yield (which should top inflation) to invest in gold, which has no yield.
Now let's switch things up. Assume I offered you the choice of purchasing a debt instrument with a 1% yield or putting your money into gold -- which would you choose? Chances are investors are going to turn to gold, since they're not missing out on much of a return by investing in bonds. Plus, investing in any bond with a 2% or lower yield could mean losing out to inflation, and thus losing purchasing power with your money.