US money supply gains 33% in 4 months, bullish for gold

Gold has been on a downtrend since peaking at $1920/oz. Gold prices are now trading at $1630/oz. However, the case for bullishness still remains particularly as the US is printing more and more money. US money supply surged by 33% in just under 4 months! Physical demand in Asia, mainly India and China, has entered the traditional peak season with Indian festivals and the increasingly important Chinese New Year. The US fiscal position is appalling with a $1.6 trillion deficit projected for fiscal 2012 alone. For those who have lost count, the US national debt has risen to over $14.8 trillion. The latest updated projections reveal that the US will reach a 100 percent debt to GDP ratio by Halloween – in 10 days time. The dollar’s recent strength is due to the fact that while the dollar’s fundamentals are very poor – its competing fiat currencies such as sterling and the euro have similar if not worse outlooks due to imprudent monetary policies. As the ‘U.S. M2 Money Supply: Accelerating Sharply in 2011’ chart shows, US money supply (M2) has surged in a parabolic manner in the last few months and is up by more than 50% year to date and up 33% in just 4 months - from June 1st to October 1st. The possibility that gold could surge to as high as $10,000/oz is gaining traction amongst some respected market participants.

Paul Brodsky, co-founder of QB Asset Management Company has again warned regarding the risks posed to US Treasuries and the possibility of a sharp revaluation of gold that could see gold reach $10,000/oz. A twenty-year veteran of the bond market in his own right, Brodsky told King World News that the US may return to some form of Gold Standard in order to restore faith in the US dollar. Proponents, including Steve Forbes and Ron Paul, argue a gold standard would prevent what they see as irresponsible money creation and force the U.S. to live within its means by limiting the amount of money monetary authorities can create. In conversation with King World News, money manager, Stephen Leeb, said that gold is remarkably undervalued and “is going to add another digit over the next five to ten years there is very little doubt about that.” Leeb recently said that gold could rise to $12,500/oz. He concluded this based on many of the factors such as gold in terms of financial assets, the monetary base and surging money supply globally.

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