In all charts, money stock values come from the St. Louis Fed. Gold stocks come from the Gold Council and gold prices from Kitco. These comparisons are for US money stock vs. World gold supply.
All charts start from a number greater than zero to better show monthly changes.
M2/World Gold Supply (oz) in 2009
MZM/World Gold Supply (oz) in 2009
M2/Gold Price in 2009
MZM/Gold Price in 2009
Gold was over $1000/oz on October 1 and has continued to rally to nominal records. Despite the high nominal price, the M2/price (8.23) and MZM/price (9.43) ratios are still at moderate levels. While the ratios are at their highest levels of the year, they have ranged from 2.40 to 19.33 going back to 1959. The inflation adjusted price is only about half of the peak in 1980.
If you think inflationary forces will win the day, then prices have plenty of room to rise from here. If you think deflationary forces will win the day, then prices are likely to drop by the end of the year. Both M2 and MZM have been shrinking slightly since July. Bank credit has been shrinking dramatically.
My guess is that high and growing unemployment along with negative real estate shocks will lead to somewhat lower prices by the end of the year. I am delaying additional purchases for now.
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