Thursday, November 21, 2013

Big undervaluation of gold against U.S. monetary base

As everyone knows, there is no gold standard anymore. It means that central banks may carry their monetary policy without any restraints. But the invisible hand of the market is still active. Let us look at the chart below:

The chart shows the U.S. monetary base and gold prices.  Although officially there is no gold standard anymore, it can be easily spotted that gold prices follow the monetary base. In reality, due to market forces, the gold standard is, magically, still intact.
What is more, there are periods when gold prices are behind the monetary base. In such a period we can say that gold is undervalued against the monetary base. And such a period is a right time to own gold.
The first such a period was between 2000 - 2003, when the big bull run on gold started.
The second period was between the end of 2008 and the beginning of 2009 at the end of the big correction of gold prices.
And the third period

Summarizing, it seems that presently it is a good time to own gold (as was the case in the first and second period).

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