Gold is still undervalued in relation to the US monetary base (M0) [long term chart]

swissaustrian

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As you can see below, the pm bull market of the 1970s brought gold in line with the US monetary base (M0).
In economics, the monetary base (also base money, money base, high-powered money, reserve money, or, in the UK, narrow money) is a term relating to (but not being equivalent to) the money supply (or money stock), the amount of money in the economy. The monetary base is highly liquid money that consists of coins, paper money (both as bank vault cash and as currency circulating in the public), and commercial banks' reserves with the central bank. Measures of money are typically classified as levels of M, where the monetary base is smallest and lowest M-level: M0. Base money can be described as the most acceptable (or liquid) form of final payment. Broader measures of the money supply also include money that does not count as base money, such as demand deposits (included in M1), and other deposit accounts like the less liquid savings accounts (included in M2) etc.
(The narrow money supply is an earlier term used in the U.S to describe currency held by the non-bank public and demand deposits of banks, M1).
http://en.wikipedia.org/wiki/Monetary_base

We are not even close to the levels of the late 1970s right now. In fact, the FED´s QE programs have widened the gap offering additional upside potential for gold. :gold: :popcorn:
Chart by societe generale:
 

DoChenRollingBearing

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That is an excellent graph swissaustrian! A lot of information packed into one little place. I will study this some more tomorrow, being a wee bit tipsy at 01:45 AM US ET...
 

pmbug

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One interesting thought related to that chart is with regards to the price of gold at it's peak circa 1980. I have frequently seen the gold pumpers at King World News and other places discuss price targets for gold (and silver) in terms of the inflation adjusted peak price of the 1980s as far as a ceiling/top for the market. I always wondered what possible justification they could use for that as the peak was (at least for silver) largely the result of the Hunt Bros gaming the paper market. It didn't seem like a logical basis for measuring anything.

I think using a metric such as outlined in the OP makes a lot more sense, but you also need to consider the gold demand/value in relationship to FX too. For example, Gold has responded to debasement of the Euro as well as the dollar.

The chart in the OP appears to be a restatement of the following chart that measures the gold price in inflation adjusted terms:

 

swissaustrian

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Great chart pmbug.
It also lines out the fact that the pm bullmarket of the 1970s was much more violent in real terms than anything we have wittnessed during the current bullmarket so far.
 

Silver_Bug

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There those who think gold has reached its ceiling for our generation, given that it rose from about 240s in 2000 to around 1650 now (about 300 bucks bellow its highest intraday few months back). I disagree. Not that i think gold will go up forever, but with trillions being pumped in the economy, ultra-low interest rates, stimulus packages, QEs, bailouts and wars there is no way gold and silver will not increase in price agaisnt the fiats.
When we ll see the economy recovering, interest rates rising, QEs, abalouts, stimlus packages and wars ending, well then gentlemen (and ladies), we will see the ceiling for gold and silver in our generation. Then will be the time for a good healthy profit taking and not a moment before.

Even then some of the gold and silver will still be good to keep, as a retirement fall back. Personally i ll keep a few k oz of silver for at least 30 years (im just 40 so won`t retire anytime soon)
 

escobar

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I truly believe as James Turk says this time it will be different we will just spend our gold and silver because it will be money. You cant really compare other bull mkts in gold to the present one because in all past ones we had some linkage of gold to the dollar. Now we have no linkage. Therefore we have had the biggest credit expansion in the history of the world. To account for all the monetary expansion we can easily see $10k gold. Chris martenson has a great interview w Brodsky. He is not pumper, he was a bond trader his whole life, he knows the bond mkts.

 
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