How Are Gold And Money Supply Related?

M1 and M2 Money Supply numbers are surging. Will gold follow?

Let's investigate an alleged relationship between gold and M2, a measure of money supply in the US. 

Let's also investigate what's happening with M1, a more narrow measure of money supply.

Clear Correlation?

The Tweet claims something different than my lead chart depicts. So let's investigate the above idea in other time frames.

Note: This subject came up again today, this time in reference to M1. It's an important topic because it is widely misunderstood. 

This is a repost with an additional fresh chart on M1 at the end plus a discussion of how M1 is distorted by Sweeps.

Gold vs Rate of Change in M2 Money Supply

Gold vs Rate of Change in M2 Money Supply

If we look at longer time frames, the rate of increase in M2 theory falls flat on its face.

One can force a correlation starting in 2010 but that is purposeful cherry-picking a timeframe. and even then, the time period in the box is counter-trend.

Cherry-Picking Timeframes

If you have to cherry-pick timeframes, especially when there are totally random results outside that timeframe, the relationship is imaginary.

Similarly, one can find times when gold is correlated to the dollar, the yen, and most likely the popularity of peanuts at Cub games in some time frame.

Gold vs Faith in Central Banks 

Gold vs Faith in Central Banks 2020-01-01 PNG

The best correlation I can find to the price of gold is faith in central banks. Gold collapsed from $850 to $250 under Greenspan's "Great Moderation". Greenspan was viewed as the "Maestro" until the dot-com bubble collapsed.

Gold went on a tear during the housing bubble, but put in a top when ECB president Mario Draghi gave his famous speech: "We will do whatever it takes to save the Euro, and believe me it will be enough."

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