Short & Sweet
Past gold bull markets have begun with a surge in the money supply

If the Fed looks for inflation, it will find it in the money supply – something that did not occur with authority in the aftermath of the 2008 credit crisis. From June 2019, the money supply has grown by $7.1 trillion. During the financial crisis that began in 2008, the Fed sterilized its money creation by routing liquidity back to its coffers in the form of commercial bank excess reserves. This strategy kept the inflation rate from running out of control. Now, the additional infusions associated with the pandemic combined with the earlier money creation is feeding into the benchmark inflation rate. Since 2020, prices have risen 26.4%. The Fed’s recently launched bank rescue plan could also eventually feed into the money supply and more inflation down the road. 

“Every gold bull market over the last 50 years has begun with a catalyst that propelled significant growth in the money supply,” writes Manning & Napier, the money management firm, in a report posted at Seeking Alpha titled The Value of Gold in a Portfolio. “Each of those prior bull markets was proceeded by substantial US dollar money supply growth, making monetary expansion a key indicator. It is important to note that this alone does not guarantee a gold bull market, as there are many other variables at play. … We see the status of each of these economic factors, money supply growth, inflation, and real interest rates, as supportive of higher gold prices ahead. Policymakers have been remarkably forceful in responding to Covid-19, resulting in substantial recent money supply growth in the US, and they appear willing to continue to throw money at the crisis in the year ahead.”

Gold and the money supply
(1971 to present)
line chart showing gold and the money growth since 1971
Chart courtesy of • • • Click to enlarge


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