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The Gold Money Supply

By Roland Watson      Printer Friendly Version Bookmark and Share
Aug 12 2009 9:23AM

Is the gold and silver bull over? Can we all sell our core and speculative holdings in anticipation of another precious metals desert ahead? The action in gold and silver since the crash of March 2008 would make us wonder if the multiyear moves in these metals is over.

I was never inclined to accept that but a recent finding has made me modify those views. In a nutshell, there will be a desert for gold and silver but it is not yet and this bull is not over yet.

The reason I believe this is because of the gold M2 money supply. Now wait a minute, isn’t M2 a measure of fiat dollars and not gold? That is true but gold has its own M2 equivalent because it is money too and this is measurable. All you need to know are the annual mining numbers and how much gold has ever been mined.

Now the annual percentage change in M2 dollars looks like this below (recessions in bars). You can see how wildly the pump has been primed over the decades as the economy lurches between overcapitalized and undercapitalized by money men who either set the price of money too cheaply or too expensively.

Now take a look at the annual percentage change in the gold M2 supply for the last 109 years.

Unlike M2 dollars the pace of M2 gold creation accelerates and decelerates at a more sedate pace between 2.5% and 1.2% per annum. The astonishing thing though is the regular periodicity of the peaks and trough with about 30 years between turning points. In fact it is so regular than one could dare to say that it predicts that this gold and silver bull market is not over! If we superimpose the price of gold (in red) on the graph we get this:

As the gold M2 supply decelerates, the price of gold enters a bull market. When it accelerates, the price of gold is in a bear market. Previous decelerations lasted at least 13 years - this current deceleration started in 1999 and is only 10 years old. I unpack this more in my latest newsletter but my message to fellow gold and silver investors is this: “This bull market ain’t over yet!?.

Roland Watson



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