NIA will soon be releasing an exclusive must read report entitled, ’50 Reasons Gold Must Rise’.
Here is one of the most important reasons that NIA will be featuring in its report:
Even though QE3 has ended, the Fed is expected to at least maintain the current size of its balance sheet moving forward. In December 2014, the Fed Monetary Base averaged $3,900 billion and gold averaged $1,200 per oz for a gold/monetary base ratio of 0.308 – up slightly from October’s all time low gold/monetary base ratio of 0.303.
Going all the way back to 1918, the median gold/monetary base ratio has been 1.063. We last had a gold/monetary base ratio above the long-term median in March 2008 when it reached a peak of 1.128.
Following the inflationary crisis of the 1970s, the gold/monetary base ratio reached a peak monthly average in January 1980 of 5.106. The all time high monthly average gold/monetary base ratio of 5.159 was reached in July 1933 during the Great Depression.
As the Fed’s monetary inflation works its way through the economy, NIA expects the gold/monetary base ratio to return to its long-term median of 1.063 at a very minimum, which would currently equal a gold price of $4,189.28 per oz. If we see US price inflation begin to spiral out of control like the 1970s, we could easily see the gold/monetary base ratio return to 5+ for a gold price of $19,700+ per oz. The bottom line is, with gold below $1,300 per oz, there is very little downside but astronomical upside.
The above chart shows the monetary base ( currency creation ) versus Gold Reserves in each country.
Above chart shows what the gold price should be to cover the monetary base in each country.