Real Gold Price adjusted for Real US Money Supply…. by National Inflation Association

By | December 28, 2013

I actually wrote a report very similar to this analysis 6 months previous, but in relation to the real price of Silver. I will re-post this article shortly, once I have re-calculated the numbers as of today.

It’s an interesting way in comparing the real increase of money aggregates against the official  ’manipulated, understated’ CPI (Inflation) calculator.

Mitch.

 

Gold’s 1980 high of $850 per oz is actually the equivalent of $7,944.83 per oz in today’s economy. Furthermore, gold’s 1976 low of $103.50 per oz is the equivalent of $1,096.12 per oz in today’s economy. Gold’s 1985 low of $285.75 per oz is the equivalent of $1,276.25 per oz in today’s economy.
 
The average of gold’s lows in 1976 and 1985 are the equivalent of $1,186.19 per oz in today’s economy. This is within 0.5% of gold’s June 28, 2013, low of $1,192 per oz, which gold once again dipped to last week. This could be a double bottom for gold.
 
During its 1971-1980 nine year bull rally, gold rose from a low of $35 in 1971 to a high of $195 in 1974 for a gain of 457.1%, followed by a dip to a low of $103.50 in 1976 for a decline of 46.8%, and then an additional gain of 721.3% to a high of $850 in 1980 – for a total gain of 2,329%. After the Fed raised interest rates to 20%, gold over the following five years lost 2/3 of its value, bottoming in 1985 at $285.75.
 
Mid-way through its secular bear market, when gold dipped 46.9% to a low on August 25, 1976, of $103.50 per oz: the real U.S. money supply as of August 23, 1976, was comprised of: 1) currency component of M1: $77.5 billion, 2) total checkable deposits: $219 billion, and 3) total savings deposits at all depository institutions: $185.9 billion – for a total real money supply of $482.4 billion.
 
Currently, the real U.S. money supply as of December, 16, 2013, is comprised of 1) currency component of M1: $1.1596 trillion, 2) total checkable deposits: $1.4828 trillion, 3) total savings deposits at all depository institutions: $7.1513 trillion - for a total real money supply of $9.7937 trillionThe real U.S. money supply has grown 20.30X in size since August 23, 1976.
 
According to the World Gold Council, the world’s total above ground gold stocks mined throughout history as of the end of 2012 were 174,100 tonnes, and after production from this past year – their figures will likely show total above ground gold stocks of approximately 177,000 tonnes. However, in recent days, several NIA members have contacted us with compelling evidence that the World Gold Council’s data is overstating above ground gold stocks by approximately 16,000 tonnes.In NIA’s opinion, above ground gold stocks are 16,000 tonnes below what is being estimated by the World Gold Council, and are now approximately 161,000 tonnes.
 
Unlike silver, which mostly gets consumed in miniscule amounts during the manufacturing of thousands of different electronic devices (such as our mobile/smart phones), only to end up in landfills – the exact opposite is true with gold. Nearly every ounce of gold ever produced throughout history is currently stored as bars in government vaults, coins in safety deposit boxes, or jewelry in our bedrooms.
 
Above ground gold stocks are important, because if total worldwide gold production each year was proportional to the amount of U.S. dollars printed by the Federal Reserve, gold would still be $35 per ounce and inflation would be the least of America’s concerns. The U.S. dollar has lost 97% of its purchasing power vs. gold since 1971 due to excess government spending that couldn’t be paid for through taxation. When calculating how much previous gold prices from decades ago are the equivalent to in today’s economy, we must always discount money supply growth by the growth of above ground gold stocks.
 
NIA estimates based on data from multiple sources that above ground gold stocks in August of 1976 were approximately84,000 tonnes, which is equal to 52.17% of today’s estimated above ground gold stocks of 161,000 tonnes. Over the last 37 years, above ground gold stocks have grown by approximately 91.67%This is only a fraction of real U.S. money supply growth of 1,930%.
 
If we take gold’s low in 1976 of $103.50, and multiply it X 20.30 for money supply growth, then multiply the resulting figure by 0.5217 to discount the growth of above ground gold stocks - gold’s 1976 low of $103.50 is the equivalent of $1,096.12 per oz in today’s economy.
 
Between August of 1976 and January of 1980, gold rose from its low of $103.50 per oz to a new all time high of $850 per oz for a gain of 721.3% is just 41 months. On Sunday evening, NIA estimated that gold’s high in 1980 of $850 per oz is the equivalent of $5,301.24 per oz in today’s economy. Unfortunately, NIA made two mistakes in its calculation, which significantly underestimated this figure. NIA mistakenly used money supply figures as of year-end 1980, after the real U.S. money supply grew by 38.44% in the previous 11 months – its largest short-term increase in history. In addition, we mistakenly used above ground gold stock figures from the World Gold Council - which we now realize is overestimating current above ground gold stocks by approximately 16,000 tonnes.
 
When gold reached a new all time high on January 21, 1980, of $850 per oz: the real U.S. money supply as of that exact date was comprised of: 1) currency component of M1: $105.9 billion, 2) total checkable deposits: $275.3 billion, and 3) total savings deposits at all depository institutions: $191.6 billion – for a total real money supply of $572.8 billion.
 
The real U.S. money supply has grown 17.10X in size since January 21, 1980. Above ground gold stocks in 1980 were approximately 88,000 tonnes, which is equal to 54.66% of today’s estimated above ground gold stocks of 161,000 tonnes. If we take gold’s high in 1980 of $850, and multiply it X 17.10 for money supply growth, then multiply the resulting figure by 0.5466 to discount the growth of above ground gold stocks - gold’s 1980 high of $850 is the equivalent of$7,944.83 per oz in today’s economy.

 
Over the following five years, after the Federal Reserve increased interest rates to 20%, which prevented hyperinflation – gold prices dipped to a bottom on February 26, 1985, of $285.75 per oz. The real U.S. money supply as of February 25, 1985, was comprised of: 1) currency component of M1: $158.1 billion, 2) total checkable deposits: $401.7 billion, and 3) total savings deposits at all depository institutions: $734.3 billion – for a total real money supply of $1.2941 trillion.
 
The real U.S. money supply has grown 7.57X in size since February 25, 1985. Above ground gold stocks in 1985 were approximately 95,000 tonnes, which is equal to 59% of today’s estimated above ground gold stocks of 161,000 tonnes. If we take gold’s low in 1985 of $285.75, and multiply it X 7.57 for money supply growth, then multiply the resulting figure by 0.59 to discount the growth of above ground gold stocks - gold’s 1985 low of $285.75 is the equivalent of $1,276.25 per oz in today’s economy.

 
Gold’s lows from 1976 and 1985 are the equivalent of $1,096.12 per oz and $1,276.25 per oz respectively in today’s economy.The average of these two figures is $1,186.19 per oz. On June 28, 2013, gold declined to a bottom of $1,192 per oz, where it once again dipped to last week – before bouncing to its current level of $1,210.20 per oz. Considering that $1,192 per oz is within 0.5% of the average equivalent of gold’s 1976 and 1985 lows in today’s economy, NIA believes there is a 50% chance it will hold as gold’s double bottom. If gold declines below $1,192 per oz to a new bottom, it will likely have huge support at $1,100 per oz, which would be just a few dollars from the equivalent of its 1976 low in today’s economy. The lowest NIA can imagine gold falling is $1,050 per oz.
 
NIA believes there is a 50% chance $1,192 is gold’s bottom, a 30% chance gold will bottom at $1,100, and a 20% chance gold will bottom at $1,050. If gold rises from $1,192 per oz to a high of $7,944.83 per oz, it will be a gain of 566.51%.
 

NIA is not an investment advisor and is not making any target prices or financial projections. Never invest based on anything NIA says. Always do your own research and make your own investment decisions. NIA never recommends to buy or sell any stock.

 

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