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 Octobers 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 Feds 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.
Posted on: Tue, 20 Jan 2015 08:09:19 +0000
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