Global Money Supply And Currency Debasement Driving Gold Higher
Gold is trading at USD 1,670.40, EUR 1,216.90, GBP 1,063.81, JPY 128,555.00, AUD 1,643.34 and CHF 1,500.20 per ounce.
Gold’s London AM fix this morning was USD 1,673.00, GBP 1,065.74 and EUR 1,218.05 per ounce.
Yesterday’s AM fix was USD 1,687.00, GBP 1,070.36 and EUR 1,222.02 per ounce.
Cross Currency Table
Gold is marginally lower in all currencies today and appears to be
steadying near four-week highs on further evidence of strong consumer
demand in Asia. Market concerns about contagion in the eurozone should
prevent significant price falls from these levels.
Jewellers and bullion dealers in India and China continue to stock up
prior to their various festivals - such as Diwali in India and Chinese
New Year in January 2012.
One of the primary drivers of higher gold prices in recent years has
been money supply growth in the US and globally and consequent concerns
about currency debasement.
Since 1998, increases in the price of gold have been correlated with
increases in global M2. If central banks in both the developed and
developing world continue to adhere to highly accommodative monetary
policies, global M2 should subsequently rise and support a further
increase in gold prices, as it has in the past.
Global Money Supply Growth – 1998 to Today
(Eurozone, US, China, Japan, South Korea, Australia, Canada, Brazil, Switzerland, Mexico, Taiwan and Russia)
Developing China’s M2 money supply has been rising by a large 20% and Russia’s by a very large 30%.
Even developed countries such as Switzerland have seen money supply
growth of 25%. Japan’s M2 is gradually moving higher after the ‘Lost
Decade’ and after recent events exacerbating an already fragile
Global money supply growth is increasing by 8%-9% per annum. Meanwhile annual gold production is less than 1.5% per annum.
We looked at money supply growth and charts regarding global money
supply, debt levels etc in a comprehensive article in early August (‘Is
Gold a Bubble? 14 Charts, the Facts and the Data Suggest Not’ - http://www.goldcore.com/goldcore_blog/gold-bubble-14-charts-facts-and-da... ) when gold was trading at $1,670/oz or much the same price level as today. The charts and conclusions remain apposite.
In order to fight economic problems brought about due to too much
debt, debt based paper and electronic currency has been created at
historically high levels. There is no sign of this abating any time soon
given the scale of the global financial and economic crisis.
Indeed, shuffling debt from one sector to another and creating more
debt to deal with what was essentially a problem of too much debt is
making the situation worse and leading to currency depreciation and
Growth in global money supply, U.S. dollar, euro, pound and all fiat
currencies depreciation or currency debasement and massive uncertainty
in global financial markets and the real risk of contagion will likely
continue to lead investors and savers toward using precious metals, and
specifically gold and silver bullion, as stores of value and safe
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