first majestic silver

U.S. Money Supply Tops $20 Trillion...Got Gold?

Market Analyst & Author
April 18, 2021

There in the upper right panel it officially is: the U.S. Money Supply ("M2") this past week topped the $20 Trillion level, data courtesy of the Federal Reserve Bank of St. Louis as retrieved from the System's Board of Governors.

Let's have a brief comparative play with the numbers. You'll recall back in the year 1980 Gold's having overly spiked from December 79's low of 433 to 873 in January of '80, a price increase of 102% in just 29 trading days. It then quite rightly all unwound such that in due course, the average price of Gold for the entirety of the following year 1981 was a more settled 467; the average level of the U.S. Money Supply that year was $1.8 Trillion.

Today with the money supply at $20 Trillion, and implementing your cross-multiplication skills acquired when learning proportional math: "as $1.8T is to Gold 467, so is $20T to ... (wait for it) ... Gold 5189!"

But that's cheating a bit, for the supply of Gold too has increased, roughly doubling since those days. So halve Gold 5189 and we get Gold 2594. Except that the supply increase in Dollars has been far more accelerative than has the supply of Gold. The bottom line is, (in sparing you the non-linear math), the Gold price as shown in the above Scoreboard is valued at 3767. And again in that upper right panel of "M2", Gold's modern-day tendency is to catch up to that green line of the money supply. Oh my. Got Gold?

To be sure, the calculation varies based upon from when historically one begins. We can mathematically make a case for Gold today being worth only about 1000; then in looking to the 3Ds of Debasement, Debt and Derivatives, there are those who make the case for Gold being worth 10000, even our "ole pal Al" (Edwards) at one time up there at 50000. But we'll stick with the conservative, mathematically logical 3767 level, especially given its tendency to track the growth of "M2" such when they again meet, we'll simply say: "There 'tis, ... again."

As for "The Now", Gold just recorded its best up week thus far in 2021 by both points (+33) and by percentage (+1.9%); the most recent week of better gains was that ending last 18 December. This obviously bodes well for Gold achieving our anticipated "near-term" target of 1800. It also bodes well for soon flipping the weekly parabolic trend from Short to Long. Per the following chart of Gold's weekly bars, such "flip" price for the ensuing week is at 1833: and that red dot level itself is moving lower at a pace of some 16 points per week, such that in some two weeks time, the rightmost red dot would be 'round 1800 ... should it take that much time to get there. Indeed a punch to and up through 1800 may come more swiftly given Gold's expected weekly trading range is now 61 points ... and this past week's high trade at 1785 was just 15 points away from 1800. "Get Ready" --[Smokey Robinson for The Temptations, '66]:

'Course, hardly alone is Gold going up: indeed all five of the primary BEGOS Markets (Bond / Euro / Gold / Oil / S&P) are rising per this view of their respective percentage tracks from one month ago (21 trading days)-to-date:

"To the Dollar's demise", you say? Sorta, kinda, but not really: the Dollar Index which over the past month has gone up and then back down, nonetheless settled yesterday (91.550) a skosh above its low (91.290) of a month ago. "Then it's inflation", you say? There are some hints there: this past busy week featured 17 incoming metrics for the Economic Barometer including March's Consumer Price Index reading of +0.6%, the most since that same amount was recorded both last June and July; Ex-ag Import Prices (+0.8%) saw their second largest increase since November 2010 and Ex-ag Export Prices (+2.0%) posted their second greatest gain since we created the Econ Baro back in 1998. We've written in the past about markets perhaps inflation-jittered only to find such worries then frittered. Either way, the above graphic may suggest the rising tide of inflation lifting all boats, albeit inflation reports (notably Core CPI) remain below the Fed's annualized 2.0% target.

And specific to what we've already been seeing per the Econ Baro, let's reiterate that penned a week ago: "... there shan't be a materially-robust post-COVID economic boom ... [i.e.] going upside gonzo nuts. It already has." When the going got COVID-tough, the private sector figured out on balance how to keep going. But we remain absolutely astonished that so has the stock market as measured by the S&P 500, (the red line in the below Baro), our honestly-calculated "live" price/earnings ratio for which is now 79.5x and the yield a paltry 1.384% versus 1.573% for 10-year dough and 2.261% for 30-year dough. The S&P pre-COVID stood at 3380: today 'tis 23.8% higher at 4185. But the "live" P/E then was 41x and is since +100% to 80x. "Haven't we crashed yet?" The market is never wrong, but its valuation is so far at the extreme end of the Bell Curve that falling from it shan't be pretty:

Meanwhile, from the "Trillions Upon Trillions Dept.", the new StateSide Administration is looking for Legislative approval for another (get ready) $1.52 Trillion in "discretionary" spending for 2022. "Hey Joe" --[Leaves, '65] don't you know that the U.S. Budget Deficit just reached $1.7 Trillion? No wonder FedSpeak this past week continues supporting a recovery taking longer than expected; (they must be reading The Gold Update). That said, SanFran FedPrez Mary "Maybe Contrary" Daly is concerned over the central bank too often offering "support" on an emergency basis. (Echoes there of "Let 'em fail"?) That'd right valuations in a heartbeat. "Got Gold?"

Here below we've got Gold on the left from three months ago-to-date along with same for Silver on the right. As you regular readers know, we've not of late be overly enamoured with either market's baby blue dots of linear regression trend consistency. However, said "Baby Blues" are now firming more as each day ensues:

Too for the precious metals, we've their 10-day Market Profiles with Gold (at left) and Silver (at right). For the yellow metal, 1754-1738 looks trading supportive, perhaps but a recent memory ought 1800 be Gold's next reality. And for the white metal -- toward our lean of a week ago -- Sister Silver got her fix at 26:

Thus here's how it stacks up for Gold:

The Gold Stack
Gold's Value per Dollar Debasement, (from our opening "Scoreboard"): 3767
Gold’s All-Time Intra-Day High: 2089 (07 August 2020)
Gold’s All-Time Closing High: 2075 (06 August 2020)
2021's High: 1963 (06 January)
The Gateway to 2000: 1900+
The Weekly Parabolic Price to flip Long: 1833
The Final Frontier: 1800-1900
The Northern Front: 1800-1750
The 300-Day Moving Average: 1799 and rising
10-Session directional range: up to 1785 (from 1722) = +63 points or +3.7%
Trading Resistance: 1779
Gold Currently: 1777, (expected daily trading range ["EDTR"]: 24 points)
Trading Support: 1765 / 1756 / 1745 / 1738;
On Maneuvers: 1750-1579
10-Session “volume-weighted” average price magnet: 1746
2021's Low: 1673 (08 March)
The Floor: 1579-1466
Le Sous-sol: Sub-1466
The Support Shelf: 1454-1434
Base Camp: 1377
The 1360s Double-Top: 1369 in Apr '18 preceded by 1362 in Sep '17
Neverland: The Whiny 1290s
The Box: 1280-1240

In sum, the anticipated Gold 1800 level is near, indeed within a single day's trading range it can clear. But again as we mentioned now four missives ago, "...the 1800s in general could well be fraught with much to and fro..." The reclamation of 1800 shall then bring with it structural resistance come 1850. 'Course with the U.S. money supply now exceeding $20 Trillion and our forecast high price for this year still in play at 2401, hardly should Gold 1800 find it come undone!


Mark Mead Baillie

Mark Mead Baillie has had an extensive business career beginning in banking and financial services for two years with Banque Nationale de Paris to corporate research for three years at Barclays Bank and then for six years as an analyst and corporate lender with Société Générale.
For the last 22 years he has expanded his financial expertise by creating his own financial services company, de Meadville International, which comprehensively follows his BEGOS complex of markets (Bond/Euro/Gold/Oil/S&P) and the trading of the futures therein. He is recognized within the financial community of demonstrating creative technical skills that surpass industry standards toward making highly informed market assessments and his work is featured in Merrill Lynch Wealth Management client presentations.  He has adapted such skills into becoming the popular author each week of the prolific “The Gold Update” and is known in the financial website community as “mmb” and “deMeadville”.
Mr. Baillie holds a BS in Business from the University of Southern California and an MBA in Finance from Golden Gate University.

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