Keith Weiner is so much further into the realm of gold than I am. He does gold for a living and has routinely debunked the pitchmen and charlatans that populate the “gold analyst” community. I on the other hand simply know that gold – the actual metal – is a hunk of stability that sits and goes nowhere while everything else around it flies up and down.
So I will not expound upon Keith’s latest article here. You can read it for yourself if you’d like (and I think you might like…).
But being a chart guy, I did notice something interesting in his article with respect to this graph.
Here is Keith’s take…
Money supply has an almost perfect record of increasing, with the barest of downward blips during the worst crisis in nearly a century. At the same time, the price of gold is up and down. Suppose the Fed were trying to get the price of gold up to $1050 from 1996 through 2008. It was increasing the quantity of dollars at a good clip. But from 1997 through 2001, the price of gold was going down. What was the Fed supposed to do, borrow more dollars into existence even faster?
Then the price of gold begins to rise, accelerating after 2005. By 2011, it overshoots by almost 100%. What should the Fed have done at that point? Pull mass quantities of dollars out of the economy from 2009 through 2013? Would any Fed Chairman have the guts to do that, given what was going on in the economy at the time? Would any president allow such a Chairman to remain in office? Would the people keep their pitchforks unsharpened, their torches unlit if so?
At best, the connection between quantity of dollars and the price of gold is tenuous, and it isn’t realistic to think that the Fed could ever really reduce the quantity of dollars under any circumstances, much less do it in a crisis.
But the thing I find interesting, since I work with indicators and divergences, is that gold over shot the money supply to the upside beginning in 2008. Now nearly a decade later gold is trying to bottom after overshooting money supply to the downside. It’s just interesting, is all. Do you agree?
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