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.