The World as Money Addicts
Source: MFHoz

The World as Money Addicts


Thank you for reading my Financial View.

Being informed about financial events is not enough. Only with the protection and optimization of our own wealth in practice will we be well-prepared for the future.


The inflation rate in the euro area decreased to 2.8% on an annual basis in January, according to the first estimate by the European Statistical Office. According to the initial estimate by Eurostat, the statistical office of the European Union, the annual inflation in the euro area in January 2024 is expected to be around 2.8%, which is lower than December when it was 2.9%.

At the same time, one of the biggest misunderstandings about inflation arises. "Why are prices still rising if inflation is falling?" The process of reducing inflation rates is called disinflation, but we still have INFLATION. Even with disinflation, it is important to emphasize that prices are still RISING. To see prices decrease, we would need a period of DEFLATION.

In the next year, a record $8.9 trillion of the U.S. national debt will mature. At the same time, the budget deficit of the United States in 2024 is estimated to be $1.4 trillion. This means that someone will have to buy such a large amount of U.S. debt through U.S. bonds. Meanwhile, the Fed is expected to start lowering interest rates, making the purchase of these bonds even less attractive.

Source: KobeissiLetter

That gold is a long-term solution to currency problems is also evident from the graphs showing gold prices in relation to the world's major currencies between 2000-2024.

Source: Crescat Capital

Inflation between 1966 and 1981 resulted from a monetary policy where the M2 money supply during that period increased by a factor of 3. The term "M2 money supply" refers to one of the money aggregates in the economy that includes cash, checking deposits, and other types of deposits that are readily convertible to cash such as CDs. Despite the increasing inflation, U.S. policymakers continued to increase the M2 money supply, worsening the situation up to the present day.

Source: MFHoz

Do you remember the recent record money printing to get out of the "corona" crisis and ensure liquidity in economies? The amount of money increased by 40% during this period.👇

Source: MFHoz

As we all know, in the last two years, we have witnessed a restrictive and limiting policy by central banks with interest rate hikes and finally, a reduction in the M2 money supply. However, considering all these increases in supply and the amount of money printing... How much did the U.S. central bank manage to reduce the M2 money supply between 2021-2023? You won't believe it! Only by a little over 3%.

In the chart below, you can see that it has been only an increase in the last 64 years. How can these currencies be successful stores of value in the face of this?

Source: CharlieBilello

An increase in the money supply in circulation has a very negative impact on the purchasing power of our money. This will be evident in the future, especially through the price of gold. Comparing gold with M2 in the last 43 years, we observe an interesting pattern of their relationship, in this case, reverse asymmetry. With the current M2 amount and a repetition of the 2012 ratio, the price of gold should be around $4,000 today, and twice as high when compared to the ratio in 1980.

I can't or don't want to imagine how "worthless" currencies would be in such times. With exponentially growing debts of countries and the hinted introduction of CBDC currencies (central bank digital currencies), it seems that countries and central banks are well aware of the poor prospects for so-called "fiat" currencies.

Source: Graddhy

Who is buying gold? Central banks, the Chinese...

Since 2010, central banks have been consistently buying gold, accumulating more than 7,800 tons during this time. More than a quarter of this gold was purchased in the last two years.

Source: Metals Focus

The Chinese CSI 300 index (stock index designed to mimic the performance of the top 300 stocks traded on the Shanghai and Shenzhen stock exchanges) decreased by more than one-fifth in the past year, while the value of new home sales among the largest developers in the country fell by 35% in December compared to the same period last year.

Source: Barchart

Chinese investors and households have been buying gold as a refuge from chaos in the local real estate and stock markets, helping support record gold prices as a safe asset.

According to the quarterly report of the World Gold Council (WGC) in 2023, China was a bright spot globally in terms of buying gold jewelry and investment flows. This happened after local real estate, stock, and currency markets disappointed following the country's exit from Covid-19 containment measures.

Together with "hot" demand from central banks, according to the WGC report, Chinese demand contributed to pushing the price of gold to record highs last month and keeping it above $2,000 per ounce this year.

Chinese investment demand for gold - including bars and coins - increased by 28% to 280 tons, largely offsetting a sharp decline in Europe. Consumption for gold jewelry in the country increased by 10% to 630 tons last year, despite global demand remaining unchanged.


A concluding thought on investing... Linking the importance of investing to the well-known game of Monopoly...

Source: Wallstreetsilver

Thank you for reading and sharing the content.

Best regards.

Peter

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The newsletter "Financial View Peter Herman" does not constitute an investment advisory service. Its content does not constitute recommendations for purchase or offers to purchase, but I want to inform you about important information that I personally consider important. For all advice and suggestions, I am available with an individual consultation or via email peter.herman@valores.si.

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