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If you believe that a higher gold price is inevitable because of the size of the debt or its rapid rate of increase, then here are some words of caution…
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Chart No. 1: Fed Balance Sheet vs Gold Price
@$$4$The chart (source) below compares the monthly percentage growth of the Federal Reserve balance sheet (U.S. Treasuries and Agency MBS) against the price of gold back to 2004.
The most visible fact emerging from this chart is the huge growth in the size of the Fed’s balance sheet relative to the increase that has occurred in the price of gold.
CONCLUSIONS FOR CHART NO. 1
Since 2004, the size of the Fed’s balance sheet has increased by 1200%, which is three times as much as the gold price increase of 400% over that same time period, i.e., there is no correlation between increases in the amount of debt which the Fed chooses to hold on its books and increases in the price of gold…The comparison of percentage growth increases in the gold price and increases in Fed debt is rather pointless.
Chart No. 2: Gold (price) to Monetary Base Ratio
The chart (source) below shows the ratio of the gold price to the St. Louis Adjusted Monetary Base back to 1918. The monetary base roughly matches the size of the Federal Reserve balance sheet, which indicates the level of new money creation required to prevent debt deflation.
It is clear from the chart that the actual size of the debt created by the Fed is not correlated to higher gold prices. For the past century, the ratio comparing the price of gold to the monetary base has declined in startling fashion. There is no apparent reason for that trend to change in any material or lasting way.
CONCLUSION
The price of gold increases for only one reason: to reflect the accumulated loss in purchasing power of the U.S. dollar.
The above version of the original article by Kelsey Williams (kelseywilliamsgold.com) was edited [ ] and abridged (…) to provide you with a faster and easier read. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.
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