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A P R I L / M A Y 2 0 2 0
GOLD
represented by the United States and its
M3 money supply. The M3 money supply
figure prior to 2008 was about US $7.5 tril
-
lion. Post-2008, it shot up to about US $9.5
trillion in mid-2011 which
was the cata-
lyst for the long term economic expansion
cycle
we're still experiencing.
The price of gold bullion anticipated
more to come and actually exceeded the
expansion in the money supply by more
than doubling in price from about US $850
to its all-time high of US $1,900 – no doubt
a little too far, too fast. But then, as gold
corrected back down to a much more rea
-
sonable price of US $1,100 in 2016, the M3
money
supply continued to steadily rise to
exit 2019 at about US $15.3 trillion, and
is currently passing up through US $16
trillion.
By comparison, as noted above, gold
bullion ended 2019 at about US $1,500.
By doing the math, we have the American
money supply rising by almost 205% from
the beginning of the great recession to the
end of 2019 while the price of gold bul
-
lion rose by about 175%. This would make
gold
bullion underpriced compared to the
US dollar by about 30% going back over
the past 12 years. And even with the cur-
rent spike up to US $1,675 gold bullion is
still undervalued
in the currency terms by
some 13%. Long term, gold bullion would
seem to be undervalued to the world's
reserve currency – the US dollar.
To review, short-term, it would seem
that the price of gold accelerated higher
in early 2020 to an overpriced position.
Taking a longer time horizon, it would
seem that the price of gold is moving up
in step with other economic cycles and key
economic commodities such as copper and
crude oil.
This seems reasonable in that the price
of gold – taken as both a commodity and
a currency – represents the average value
of the products that power the world's
economies. Mid-term, the world's econo
-
mies are expanding and the price of gold
bullion would
seem to be mirroring that
expansion. Long-term, the price of gold is
GOLD Continued on page 68
