9 Exciting Gold And Money Charts

In his latest monthly editorial, writer and researcher Peter de Graaf has pulled several charts together which show the status of the gold market. Apart from a positive seasonal influence, the fundamentals still point to strength in gold. The “fundamenals” in this context are basically the relative strength of precious metals compared to other finanical assets, in particular money (as reflected in the monetary base on the US Fed balance sheet) and stocks. The author adds some basic technical analysis to his article. Both short and long term, gold seems well positioned (the mid long term, though, is not explicitly elaborated).

Historically the month of March is not very ‘gold-friendly’.  April and May are more conducive to providing a rally. The first chart is courtesy Seasonalcharts.com. The March pullback came on schedule and appears ready to turn into a rally.

gold_seasonals_30_years

The next chart shows the number of US dollars that are currently circulating (courtesy Mark J. Lundeen). The number is over 1 trillion dollars, and rising exponentially.  This is in addition to the trillions of dollars in digital form, which make up the money supply.

US_Currency_circulation_1920_2014

This next chart shows the US Monetary Base, which continues to rise exponentially.  The two tiny ‘blips’ in 2000 and 2001 represent the large amounts of money shoveled into the system by Mr. Greenspan to keep the system afloat.   The amount of money that is added at this time is mind boggling. During the last 30 day period the base increased by 80 billion dollars. No ‘tapering’ here.   While not all of this money will find its way into gold and silver, some of it will, and as the rally that began on December 31st picks up steam, more and more of this liquidity is expected to move into the precious metals sector.

monetary_base_2014

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.” — Alan Greenspan, “Gold and Economic Freedom” in Ayn Rand, ed., Capitalism: The Unknown Ideal (New York: Penguin Group, 1967), 101-108

The following chart compares gold to the US monetary base.  The interpretation is that gold is cheaper than at any time during the past 100 years!  The current reading is 0.4!  When it climbs back to the 4.0 zone; that would imply a gold price 10 times higher than today. Chart courtesy: Macrotrends.net. 

gold_vs_monetary_base_ratio_longterm

The chart below confirms the fact that gold is very cheap at this moment.  Mr. Lundeen compares the current gold price to the purchasing power of a dollar in 1920.  He calculates that gold needs to rise to $8750 in today’s dollars to return to what it was worth in 1920.  This sets the stage for a continuation of the current gold bull market.

price_of_gold_longterm

The following chart shows the energy that is being provided by the US FED (by way of money printing), benefiting both the S&P (red line), and gold (black line).   The gold price was pushed out of this relationship when huge numbers of contracts for paper gold were executed at the COMEX in mid-April 2013.   On Friday April 12th 2013 at the opening of trading at the COMEX, 3.4 million ounces of gold contracts were dumped in the June contract.  On Monday April 15th, another 10 million ounces hit the tape.  The amount of gold (in the form of contracts) that was dumped over the two-day period represented 15% of total world gold production.  

Meanwhile, to fill demand from China, hundreds of tonnes of physical gold were released by the Bank of England, while a large amount of gold was pried away from GLD the gold ETF, in  response to rising demand from Asian countries.  Chinese and Indian people love bargains! That gold is now gone!  It cannot be sold again! This has created a situation where, like a rubber band, the gold price is expected to snap back into the previous alignment.

US_Fed_assets_vs_S&P500_vs_gold_2010_2014

Featured below is the daily gold chart.  Price broke out at the 200DMA (red line) in February and since meeting with resistance at $1400, a test of the breakout has been underway.  The supporting indicators (green lines), are providing hints that support is available here.  A breakout at the black arrow will tell us that a bottom may well have been carved out.  The green arrow points to a ‘golden cross’, with the 50DMA moving into positive alignment with the 200DMA.

gold_price_golden_cross_March_2014

Featured below is the index that compares gold to the S&P 500 index.  In late 2011 this index became temporarily tilted in favor of gold.   The reversal of direction that came about as gold dropped in price while the S&P 500 rose to new highs, appears to be ready to change direction again.  Confirmation will come about when price breaks out at the blue arrow.  The three supporting indicators (green lines) are ready to turn up.

gold_price_vs_S&P500_2002_2014

This last chart compares the price of gold to the US long bond.  The blue line is the 400 week moving average.  Up until 2003 it made sense to own bonds and not gold.  The green arrow points to the moment when gold took charge.  Since then gold has outperformed bonds.  In 2011 gold had moved up a bit ‘too far too fast’ and a pullback in the relationship caused this index to return to the 400WMA, where it is finding support.  A breakout at the blue arrow will cause many people to become interested in gold, and bond money is expected to flow into the gold sector, as the eleven year old trend picks up steam.

gold_vs_bonds_1995_2014

 

About the author: Peter Degraaf is an online stock trader with over 50 years of investing experience.  He publishes a daily market letter.  For a sample copy please visit www.pdegraaf.comCourtesy of the excellent website Nowandfutures.com for the Greenspan quotes used in this article.

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