Global Money Supply And Currency Debasement Driving Gold Higher

Tyler Durden's picture

From GoldCore

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’ - ) 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

For the latest news and commentary on financial markets and gold please follow us on Twitter.


Gold steadies as dollar offsets consumer boost 

Gold Retreats as Commodities Decline After Chinese Trade Expansion Weakens

Gold steady on Europe hopes; physicals help

China Exports Slow on ‘Severe Challenges’

(The Telegraph)
UK rating downgrade 'unavoidable'


(The Telegraph)
Ambrose Evans-Pritchard: Mario Draghi fears Italian debt spiral

Jim Willie: Euroland & the Gold Rebound

(The Telegraph)
Will Finland be the mouse that roars and be the first to leave the euro?

(24h Gold)
Fiat Money and the Euro Crisis

Lackluster economy could lead to next gold rush

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moskov's picture

Don't worry. Dollar is backed by US government but Gold is backed by nothing

agent default's picture

The insight of this statement is just too epic for words.

wombats's picture

B B B But I saw it on the news so it must be true!

Pinto Currency's picture



Gold is not "backed" by anything because it doesn't need to be backed by anything.  It's value is what it IS.


It doesn't need a promotion like it is "backed by the government" because it isn't just a piece of paper.


And given what we've seen governments do, the idea that something is backed by the government should scare the hell out of you.

Snidley Whipsnae's picture

"The insight of this statement is just too epic for words."

The stupidity of this statement is a total waste of bandwidth... fixed it for you.

Subtlety does not work on trolls... You can quote me on that.

George the baby crusher's picture

And your rebuttle to the statement is warranted and not at all a waste of bandwidth.  Lighten up Snidley Whipshit.

qussl3's picture

As much as i hate it, i have to agree to an extent.

Gold isnt going to circulate as currency.

Never underestimate the sheeple, remember you had Germans continue to circulate Marks when it took whole wheelbarrows of them to buy bread.

People are remarkable pliant, especially when they are so heavily "invested" in the current system.

The dollar will continue as circulating currency, while gold stores wealth.


Chaffinch's picture

We all need to eat - if a wheelbarrow load of fiat was my only way to get food I'd do it.
But I'd rather prepare ahead of such a disaster - with stores of food, silver, gold etc.

wombats's picture

Marks made good wallpaper.  I'll bet FRNs would do well on the wall too.

Snidley Whipsnae's picture

The US Gov has been around how long? ... and gold has been used as a store of value how long?

Gold not only has no counter party risk, it has intrinsic value due to it's rarity and because of it's historic role as a store of value...

Gold is also valued because of the past labor that has been expended to bring it to market... said labor has already been paid for.

Moskov... Do you think the US Gov will outlast gold's role as a store of value?

Smiddywesson's picture

Snide, It's a joke.  He was quoting some idiot Canadian newscaster bimbo from a few days ago who said the exact same thing.

Yeah, she actually said it.

mick_richfield's picture

The dollar is backed by the US government but Gold is backed by nothing.

The insight of this statement is just too epic for words.


Well, maybe not.  Let me take a whack at it.

The reason this statement is so beautiful is because it gets so succinctly at the most fundamental difference between statists and anarchists. 

The statist cannot conceive of any source of order other than a central governing intelligence.   The need for such an intelligence seems self-evident to the statist in spite of obvious counterexamples in nature.

The anarchist  ( no power ) understands that real order arises as self-organizing phenomena:  a complex ecology from the interactions of many animals and plants, human intelligence from the interactions of many neurons.  All without a central controlling power.  The exercise of conscious force over such a system cannot improve it.

Silver (and gold ) are what get used as money in an economy that has no central governing power.  Powerful men always want to substitute artificial money for silver ( and gold ), just like they always want to make artificial changes to complex ecologies. 

In the case of money and economies, they tell us that it's for our own good.  If we, like trees, whales, or bison, didn't have any way of resisting their depredations, they wouldn't bother with lies and paid shills -- they'd just bring in the bulldozers or the harpoon ships.



toady's picture

While the comment 'gold is backed by nothing' is indeed funny, I think most commenters are looking past the 'dollar is backed by the US Government'.

The government will use its power to back the dollar, and the US Military is nothing to joke about.

Strelok's picture

All of you who are talking shit directly to moskov don't realize that he's being sarcastic.  He's referring to a video that ZH posted several days ago:

Goldenballs's picture

Gold is backed by everything which means it has intrinsic value unlike yourself who is a boring and talentless little troll who probably lives in la-la land.

JonNadler's picture

he's referring to a Canadian reporter who said gold was backed by nothing but the dollar by the US Government

She was a student of mine long ago


mick_richfield's picture

Then it's up to you to rescue her.

r00t61's picture

Is the increase in money supply offset by credit destruction?

agent default's picture

No not really, the increase in the money supply is implemented in order to avoid credit destruction at this point.  It is a catch 22 situation actually, either you default on the debt (credit destruction) of on the currency through inflation.  The end result is of course the same, it's just that the monetization path is stealthier and keeps the masses calm(er).

Cycle's picture

Exactly right. Hyperinflation and deflation are two sides of the same coin: money destruction. One by debasing its purchasing power, and the other by destroying "debt dollars"  via debt default. Historically, hyperinflation is probably worse than deflation in terms of maintaining social order.

Crash N. Burn's picture

Depends what you means by"credit destruction", commercial and industrial loans contracted by 25% in 2010 and the currency supply is collapsing for the first time since the Great Depression.

PaperWillBurn's picture

"All the other monetary aggregates contain credit money and debt assets that are generally very liquid and directly tied to the value of a physical dollar. These assets that we are taught are the same as dollars are the direct debt of certain approved corporate institutions. They are mere credits while the institutions engage in a murky game of financial smoke and mirrors with your real money. These credits may be the most dangerous of all during a systemic collapse as they are cloaked in a morass of legalese small print.

And as I have shown to some degree in this post, and in greater depth in past writings, these wider aggregates have little effect on the consumer price index we all watch so closely. The big secret of the central bankers is that it is the monetary base, the cash, that has the most effect from a quantity theory perspective.

And it is systemic confidence (YOUR confidence in the system) that has an equal effect from a velocity perspective.

To demonstrate my point, I have adapted the above diagram to show what it looked like in Zimbabwe last year...


The important thing to remember is that the pile of debt on the right side of the diagram is fixed to the value of each individual physical dollar. So as the physical stuff is diluted to fill the void left by the failing credit/debt system, it directly impacts the real value of the debt market.

This is exactly where we are heading. So you have to ask yourself: With a whole planet-full of paper debt wealth, how long are the savers going to sit there waiting for their value to disappear? But the fact is that it doesn't matter how long they sit there. The only difference that will make is how much value they are going to lose. You see the system can no longer support their value on its own. This is clear from the housing crisis, Iceland and now Greece. But the system must go on so the very unit their value is fixed to must be diluted to infinity just to keep the circle spinning.

And infinity is truly the limit. Don't expect austerity or a deflationary collapse. Don't expect them "to do the right thing" and let the bad debt fail. There is simply too much of it out there. It is our entire global monetary system, not just the bond investors. There is no political will anywhere in the world to let the people's wealth simply vanish in order to maintain the value of a silly little physical dollar. This **THIS** is the big Catch-22! In order to save the people's "money" it will be destroyed!"

Ponzi Unit's picture

Moskov, you are a pathetic hireling, a common troll, a pissant
agent provocateur.

Smithovsky's picture

I think he was just sarcastically quoting the pretty little TV reporter from CTV, although I think the video has been taken down



JOYFUL's picture

whoa up there bud...guy's just an innocent bystander, quoting an airhead reporter from Alberta CANUCKISTAN....

please redirect your anger towards a more suitable candidate> after catching up on current gold related discussions here & elsewhere.

“What you're thinking is what you're becoming.” 
 Muhammad Ali


like your adjective tidal formation, just wish you to find the right home for them!

zuggestion box:  Eric Holder?

Cycle's picture

What currency debasement?  Most of the money creation has been counterbalanced by debit creation. That money was not printed, it was created with debt.  Usually it is a mix of the public and the private sectors that create money by borrowing, but failing that, we now have the Fed in the borrowing game.

It does not matter, it is still money counterbalanced by Fed debt.  In a deflationary depression, rolling debt defaults will quickly mop up that liquidity, resulting in a rise in dollar purchasing power. This gold cycle model is consistent with this view.

qussl3's picture

Assuming default is even possible anymore.

We've built such a mountain of debt that everything rests on a hair trigger, once one small portion goes kaput everything goes.

There are 3 options, on the 2 extremes either high inflation for a decade or insane deflation within months that would make 2008 look like a party.

Alternatively, periods of mild deflation and extended inflation for decades.

We are a global Japan, without the external export market to support excess production.

abugarance's picture

spot on, look at the current velocity of the M2 which has collapsed, all the pumping of M2 has reached the breaking point of low effect on circulation, follows depression and deleveraging, reversing all the liquidity pumping

msmith's picture

Currency debasement is the long term story for sure.  In terms of the short term, the EURUSD and USDCAD are showing some interesting USD strength to keep an eye on.  Also the USDCHF is beginning to show signs of breaking down against the wishes of the SNB.  Gold may still have room to push higher.

Poor Grogman's picture

Look I don't know about you clowns but I have reached the acceptance stage of this whole collapse. This means that i'm actually starting to enjoy it a bit (beer helps).

Adjustment can be fun if viewed from a safe distance.

Unless there are more nasty surprises that I don't know about let the new good times roll.....

Thomas.2012's picture

Be careful what you wish for.

Talk to people in their 80´s and be sure that there will be a whole bunch of nasty surprises which you never dreamed about in your wildest nightmares.

Poor Grogman's picture

Point taken, not wishing for anything, but merely accepting the inevitable.

Big difference.

Let the chips fall where they may I have forged my path and if it is the wrong one then so be it.....

Pinto Currency's picture


The part I don't get is what is a safe distance when the crisis is global.


And what about those 104 nuclear power plants in the US when TSHTF.

Strelok's picture

Don't be so sure that you have forged your path.  You must be prepared to adapt if insurmountable roadblocks drop out of the sky. 

PulauHantu29's picture

"You can't eat gold," The Bernank said.

Poor Grogman's picture

Yes but you can't bury food for ten years then use it either.

Clint Liquor's picture

Sure you can. Dehydrated food in air tight containers are good for 25 years buried in the ground.

Poor Grogman's picture

I can't imagine what that would taste like...
I wonder if there is any on EBAY..
Oh. Hang on a minute what's this? 30 year old peas stored in dry sandy soil no worms or caterpillars.

Buy it now .. Only $20.00

Wow I,m bidding baby..

eurogold's picture

I don't get it. I am holding Gold. Everyone is saying Gold is taking off, but I am not seeing it. The price is dropping or just ranging.

When will we finally see Gold react positively to the financial turmoil?

StrangerThanFiction's picture

Be patient young Jedi, the low price of precious metals is a buying opportunity.

Spigot's picture

They have to restructure the global monetary situation to get debt/GDP back into sustainable range (100-150%). A few tactical bancrupcies will be allowed. Inflation of the monetary base will rule. That is all. Things of finite quantity will "appreciate" in price, or correspondingly currencies will have to drop in value vis a vis real things.

Bansters-in-my- feces's picture

Every Harry,Dick and Tom has a reaon why Gold is moving higher.


Gold is moving higher ,only when the TPTB allow it to.

Simple math.

Strelok's picture

Simple math.


Lol. that made me chuckle.