The Effects of Increasing Global Money Supply on Gold

Today’s AM fix was USD 1581, EUR 1287.15 and GBP 1020.66 per ounce
Friday’s AM fix was USD 1591.75, EUR 1285.54 and GBP 1024.29 per ounce.

Gold fell by $20.60/oz in New York on Friday, closing at $1,583.80 with a small 0.93% loss on the week. Silver closed at $27.11/oz with a 1.35% loss.

Gold is little changed in Asian and European trading this morning, and is currently at $1,583.54/oz. Silver is up slightly from Friday’s close, and currently trading at $27.21/oz.

US jobs report on Friday was disappointing but not far below the expected figures; still, this increases the pressure on the Fed to take measures to stimulate the US economy.

The majority of economists polled by Reuters increasingly believe that there will be another round of quantitative easing or government bond buying in the US.

WGC – Linking Global Money Supply to Gold and Future Inflation

WGC stresses that when looking at the effects of variables like money supply and inflation on the gold price, it is important to look at the global economy, and not concentrate only on what is happening in the US. After the start of the financial crisis in 2007, many governments and central banks in the world implemented monetary and fiscal policies to help their economies, but these policies have led to a large increase in the global money supply.

The report shows that when money supply increases both with normal economic growth, and when the supply is increased artificially by central banks, gold prices go up as well. Interestingly, the report finds that there is about a six-month time lag between an increase in the money supply and the price of gold – money supply growth appears to impact future gold performance. Even so, changes in the global money supply only partially explain changes in the gold price.

As far as inflation is concerned, the report suggests that movements in the price of gold can predict changes in the velocity of money, and thus also predict inflation.

The full World Gold Council report is available here.

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NEWS

Gold steady; market uncertain if Fed will ease policy – Reuters

Gold edges higher as Asia stocks founder – MarketWatch

Gold extends losses to 3rd session after US data – Reuters

Mark OByrne

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