vrijdag 3 mei 2013

Money Supply

This page is created to monitor the Money Supply.

Base money is basically correlated to the Federal Reserve's Balance Sheet (red chart). When base money is increased, the other monetary aggregates (M1 in green, M2 in yellow, MZM in blue) will follow suit.

The expansion of the money supply is the very definition of inflation. As long as these charts go up, we will have inflation.


Total base money fiat supply is about 20 trillion.


The money supply is correlated to gold price.

 

To calculate the fair price of gold we assume that central banks need 20%-40% gold backing. Let's be conservative and use 20% gold backing.

The amount of gold that central banks hold today is $1.304 trillion.


The global base money supply is around $22 trillion today. (There are people who use M1, but I'm conservative and use base money M0)


To back this money supply by 20%, we need $22 trillion x 20% = $4.4 trillion.
This means that gold will need to rise in price from $1.304 trillion to $4.4 trillion.
Or 4.4/1.304 = 3.4 times.

This gives a fair gold price of 3.4 * $2000/ounce = $6800/ounce

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