Massive Money Printing: What It Means for Gold?

The Spotlight

1 minute read

Jul 20, 2021

dollar bills with raw gold bars on top symbolizing excessive money printing which is a major driver for gold prices.

Reckless money printing devaluates the currency, making investors turn to physical assets like gold that cannot be printed or created out of thin air.

In our previous SPOTLIGHT, we looked at the factors indicating that the bullish case for gold is getting stronger: higher-than-expected inflation, lower yields, bitcoin crash.

There is another very important driver for gold that is showing signs of support for the bull momentum: record money printing.

The backstory

Over the past 18 months, central banks have been printing money at a record pace to prop up their economies hit by the COVID-19 pandemic. As a result, this has weakened the purchasing power of paper money.

Take a look at the M2* money supply chart below: since January 2020, the US has created nearly 25% of all U.S. dollars in circulation.

This is close to $5 trillion added out of thin air into the economy in a little over a year.

*M2 is a closely watched measure of the money supply that includes cash, checking deposits, and near money that is easily convertible into cash (assets such as savings, for example).

m2 money supply chart that shows that the amount of money poured into the US economy has grown significantly since 1960s

Why is extreme money printing a driver for gold?

Printing money tends to devaluate a currency. This means that your salary or money in the bank, while still indicating the same amount, will start losing value over time.

Therefore, when a paper currency starts losing its value, investors usually look for alternative stores of value to protect their wealth and turn to physical assets like gold because they historically resist better to these types of risks.

Indeed, unlike paper money that can be uncontrollably printed by the state, physical gold cannot be printed or created out of thin air, which gives it a natural and intrinsic value.

Don’t miss our next SPOTLIGHT to learn about another strong indicator making the case for gold’s bullish momentum: the gold to S&P500 ratio.


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