Data Shows Gold Is Undervalued In Many Currencies Since 2011

  • Gold is undervalued, since 2011, because currency in circulation has risen much more than the gold price.
  • The US dollar has failed to properly value gold in real terms. So have other world currencies.
  • Expect a sharp upward correction in gold prices around the world during the next recession. This includes prices in US dollars.
  • Gold’s natural limits on growth make it an ideal way to measure the value of various fiat (unlimited) currencies over time.

Since the last recession in 2008-9, gold’s price has fallen 45% in US dollar terms at the same time US M2 money supply has risen 70%. On its face, the relationship between the growth in aggregate money supply of dollars and the fall in corresponding dollar price of gold doesn’t make any sense.

Source: FRED

Gold’s Valuation Relative to Fiat

It is reasonable to assume that the increase in fiat dollars, created easily through a printing press and computer, would increase the prices of all real goods requiring labor and time to create. However while the general prices of goods in the US economy have risen, albeit not in line with the same growth in US M2, the price of precious metals such as gold and silver have not steadily risen, and have instead fallen substantially against the dollar.

The price of gold has risen in the value of many other world currencies. The following chart illustrates how much gold has risen, grouped by comparative difference to gold’s price peak in 2011. I will refer to this information throughout the rest of the article.

Data Sources: Goldprice.org, XE Corporation

A reasonable person may presume that for those currencies in which gold prices have risen substantially, the value of the dollar against those currencies also rose by a similar amount. In other words, dollar strength versus the field of other currencies would explain why gold’s price is rising in the other currencies, assuming all other factors are constant.

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