Here’s One Big Reason Why Gold Prices Could Soar
Gold prices continue to move upward. The yellow precious metal is up 25% already year-to-date and it could soar even higher in late 2016—and keep going up in 2017.
Here’s something that will sound bold, but it’s quite possible: don’t be shocked if the gold price hits $2,000 an ounce by the end of 2017.
Where Are Gold Prices Going Next?
First, let me tell you why the gold price could skyrocket.
You see, currently, the main theme around the world is negative interest rates. Major central banks worldwide are working very hard to bring their benchmark interest rates lower.
Take the European Central Bank (ECB), for example. It’s implementing a so-called NIRP, or negative interest rate policy. Others like the Bank of Japan, the Swiss National Bank, and more are doing the same.
When you have negative interest rates, the value of your money is pretty much zero and returns are dismal. Bond prices surge and yields plummet. Consider the chart below of the 10-year U.S. Treasury. (Note that the Federal Reserve isn’t implementing a NIRP.)
Chart courtesy of www.StockCharts.com
With a U.S. 10-year Treasury, you just make 1.5%. Elsewhere, in Germany, for example, you lose money by owning 10-year German government bonds.
Dear reader, you have to remember this: gold is one of the best stores of value. With money being almost worthless, investors are rushing towards gold. That’s why the gold price is moving higher.
It must be understood that negative interest rates are here to stay for a very long time. The few central banks that are implementing a NIRP have no plans of normalizing their monetary policies anytime soon. We also hear a lot of noise suggesting several others might move towards a NIRP as well. So, expect more investors rushing towards the yellow precious metal.
Now, how are gold prices going to $2,000 by end of 2017?
Gold Price Outlook for 2017
Currently, gold is trading at approximately $1,350. For it to go to $2,000, it will have to increase by roughly 48% in value.
With this in mind, you have to ask one question: could the price of gold really move 48% in about 17 months (August 2016 to December of 2017)?
There are a few things you must consider.
First, understand that there is a lot of money around. Just think about investors in Europe. Their money is losing value very quickly. They could be rushing towards gold soon if they aren’t already doing so. Also, keep in mind that the gold market is very small compared to the global stock and bond markets.
You don’t need a lot of money going towards the gold market for gold prices to skyrocket.
Then, you have to question if gold prices have ever increased more than 48% in a 17-month period. Yes, it has happened—several times before. In fact, between April 2010 and August 2011, gold prices increased roughly 64%.
One could argue this was when gold prices were in the so-called bubble.
Is there any other instance when gold prices moved above 48% in 17 months? Yes. Between July 2005 and November 2006, gold prices increased more than 49%.
The Bottom Line on Gold Prices
Keeping all of this in mind, pay attention to gold mining companies. If gold goes to $2,000, gold mining companies will surge in value.