Gold price and money supply: The correlation every investor needs to know
The Strongest Correlation in Modern Finance: Gold and Money Supply. Understand the mechanics and why gold is not optional in QE times.
- How to understand gold and money supply: the long-term correlation and use it for your capital strategy
- How to understand the mechanism behind it and use it for your capital strategy
- How to understand gold in crises: the real safe haven and use it for your capital strategy
- How to understand related articles and use it for your capital strategy
Gold and Money Supply: The Long-Term Correlation
One of the strongest correlations in financial history: When central banks print money, the price of gold rises. Huber's analysis (Figure 71) shows this measurably.
This is a very high correlation. For comparison, stocks and bonds only have a 0.15 correlation. Gold is therefore a fundamental hedge against monetary expansion.
The mechanism behind it
Why does this work?
1. Purchasing power argument
Gold is a store of purchasing power. When the central bank prints money, your paper money becomes worth less. But gold is scarce - the amount cannot simply be doubled. So its price in paper units increases.
2. Real Zinsar argument
Gold pays no dividends, no interest. It is attractive when real interest rates are negative. QE leads to negative real interest rates (nominal interest rate < inflation). Consequence: Gold becomes attractive.
3. Inflation expectations argument
When investors expect more money to be printed, they buy gold as an inflation hedge. This creates the self-fulfilling prophecy: money supply increases → gold demand increases → gold price increases.
Gold in crises: The real safe haven
Huber's analysis shows (Figure 67): In crises, when stocks fall by more than 7.5%, gold is the only asset that is positively correlated.
The lesson:The lower the real interest rates, the higher the return on gold. In today's world of QE and negative real interest rates, gold is not a luxury - it is a mathematical necessity.
Daniel Huber, M.A. — Hochschule Mainz, 2020 | Betreut von Prof. Dr. Arno Peppmeier
13.174 Wörter · 92 Abbildungen · 39 Tabellen · Markowitz-Effizienzlinienanalyse
What you now know — and how to use it
- You know the core concepts and can apply them directly to your situation
- You know which mistakes to avoid — saving you time and capital
- You understand how this building block fits into your overall strategy
Sources & Further Reading
This article is based on a review of leading expert literature and curated primary sources from the CANVENA source matrix — more than 60 core books and 120 online resources across all relevant fields from capital intelligence, family office, strategy and valuation.
Books
- The New Case for Gold — , Portfolio.
- Currency Wars — , Portfolio.
- The Intelligent Asset Allocator — , McGraw-Hill.
Online Resources & Industry Reports
- Gold Demand Trends — World Gold Council
- Precious Metals Market Data — London Bullion Market Association
- Gold & Precious Metals News — Kitco
Links are recommendations, not affiliated.
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