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 united in their fight against COVID-19, this hasn’t stopped trade tensions between the U.S. and China from once again heating up, nor has it calmed disagreements between North and South Korea. Geopolitical risks have certainly taken a back seat to more pressing concerns, but they still have the potential to stir up panic and send gold prices higher.

5. COVID-19 fear and uncertainty

As I’ve alluded, gold is often known as a safe-haven investment during periods of panic and fear. The unprecedented nature of the coronavirus pandemic certainly has folks on edge. We still don’t fully understand everything there is to know about COVID-19, and we’ve already witnessed a second wave of infections in a handful of states. With little certainty as to when a vaccine will be available, as well as when economic activity will return to any semblance of normalcy, gold stands as the clear beneficiary.

6. Bull markets are usually long lasting

Sixth, gold has history on its side. Although spikes higher do happen in the gold market, it’s far more common to see the physical metal enter long bull-market cycles. The end of the gold standard in 1971 helped perpetuate a more than 10-year rally in gold prices throughout the 1970s. Then, between August 1999 and August 2011, the price of gold galloped higher by more than 600%. Bull-market moves in gold tend to last for a long time and can deliver significant returns to patient investors.

7. Emotion-driven investing

Finally, don’t discount emotion-driven short-term trading as a reason behind higher gold prices. Though we at The Motley Fool don’t believe in trying to time the market, there are more than enough short-term traders to allow for emotion-driven swings in gold.

Here are three ways to make money as gold prices soar

As I’ve previously stated, gold hitting $3,000 by 2022 is a very real possibility. The question is, how should long-term investors approach this expected surge in the price of gold to make money? To that end, I offer three options.

First, if picking out individual gold stocks isn’t your forte, you can consider buying into an exchange-traded fund (ETF) like the VanEck Vectors Gold Miners ETF (NYSEMKT:GDX). For a reasonably low net annual expense ratio of 0.52%, the VanEck Vectors Gold Miners ETF gives investors exposure to more than four dozen mining stocks from around the world. The beauty of an ETF is you don’t have to worry about the poor performance of one stock ruining your day. The VanEck Vectors Gold Miners ETF is probably your safest bet.

A second way to play a big increase in the price of gold is to purchase a streaming company, such as Wheaton Precious Metals (NYSE:WPM). A streaming company provides up-front capital for mine development in exchange for a percentage of output at a below-market cost. Wheaton then sells what it receives from its partners at market prices and pockets the difference as profit.

Wheaton Precious Metals has negotiated numerous gold and silver streams, meaning it isn’t tied to the performance of any one producer. Most importantly, streaming companies are instant beneficiaries of rising physical metal prices. In the March-ended quarter, Wheaton’s average cash cost per gold equivalent ounce (GEO) was $403. This means it’s now netting a cash operating margin of more than $1,500 an ounce.

Third, consider individual mining companies, like Kirkland Lake Gold (NYSE:KL). Yes, I’ve been beating the drum on Kirkland Lake for months, but that’s only because of its superior balance sheet and production efficiency. Kirkland Lake Gold ended March with almost $531 million in cash and no debt, and had recently doubled its dividend and repurchased $329.8 million worth of its common stock. This is all made possible because of the company’s low all-in sustaining costs of $776 per GEO.

Don’t miss out on what looks to be a monster rally in precious metals that’s still in the early innings.

— Sean Williams

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Source: The Motley Fool