How Under-Valued Is Gold Presently ?

Gold Versus M2 Money Supply

11th MAY 2015



Gold may start catching up to money-supply growth around the world, according to Stephen D. Walker, head of global mining research at RBC Capital Markets.

The attached chart tracks the relationship between the precious metal’s price and the combined M2 money supply of the U.S., Canada, the U.K., the euro region, Japan and China, based on data compiled by their own central banks. M2 consists mainly of cash, checking and savings deposits, and investments in money-market mutual funds.

Gold’s price had an 89 percent correlation with the M2 totals during the past decade, according to a report by Walker and a dozen colleagues that had a similar chart. The comparable figure for U.S. M2 has been 83 percent since 1975, they added.

“The correlation has broken down over the past few years, in fact since just 2013.

Breakdowns have occured in the mids'80's and at the start of this bull market in very early years of the new century (2000's). These breakdowns corrected quite quickly.

As you can see with this chart a move back above US$1,800 or a 55% revaluation from todays price is only bringing gold back to historical correlation.



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