zaterdag 11 mei 2013

Gold Price Target

This page is created to monitor the target price of gold as opposed to the money supply M1, central bank forex reserves, fed custodials and U.S. external debt.

M1 correlates to gold because the more money is present in the system, the more gold can be bought and the higher the gold price will become.

Central bank forex reserves correlate to gold because a central bank tends to have as much gold as forex reserves on their balance sheet.

Federal Reserve Custodial accounts are a group of accounts that contain money from foreign central banks (mostly treasuries and a some MBS's). In other words these are the U.S. debt holdings of Foreign Central Banks around the world. It is a direct measure in our opinion of how foreign central banks view the stability and value of the dollar, and the current monetary policies of the US. It frequently shows changes in major financial trends far ahead of "the crowd's" awareness. A rising custodial trend is accompanied by rising gold prices.

Increasing U.S. external debt (which can be found here) leads to higher gold prices because the amount of gold held by the Federal Reserve should be linear with the U.S. external debt held by foreigners. Technically, to be solvent, the U.S. should be able to sell all of its gold to buy up all external debt. As of 2013, external debt was $5.5 trillion. The U.S. held 8133.5 tonnes (or 260272000 oz’s) of gold. To be solvent, the gold price would need to be $5.5 trillion/260272000 = $21131/ounce. This is 15 times higher than the current gold price.

4 opmerkingen:

  1. This analysis makes no sense for two reasons:

    1)even if the amount of physical money (M1) is increasing, the Velocity of M1 Money Stock is at a 10-year low at moment. That means there is actually less money available for investors to buy gold, because the velocity of circulation is low.

    2) even if the velocity of circulation where to increase, there is no evidence to suggest that investors would buy gold. There are lots of other assets which they could buy, or if they want a low risk investment, they could put their money on deposit at a bank or even buy bank shares in anticipation of higher interest rates.

    1. Yes, they can put the money on the bank, but if the Federal Reserve keeps printing (like in Japan). Those yen will decrease in value, let's see how long those Japanese will keep their money in the bank...

      Also, when you buy bank shares in anticipation of higher interest rates, you will lose money. Bank shares will crash if interest rates go up to their (unmanipulated) normal interest rate, because the interest on the deposits need to be paid out to the depositors. And bank lending will decrease due to high interest rates.