🟨 Gold’s Fundamental Valuation

One interesting way to estimate the fundamental value of gold is to compare its price with M2, or global money supply, measured in U.S. dollars. In this framework, gold is not valued purely based on physical supply and demand. Instead, its price is compared with the amount of money circulating in the global economy. The M2-to-gold ratio is one way to examine this relationship. (In Gold We Trust)

The important point is that the relationship between M2 and gold is not linear in the short term. Real interest rates, the dollar, systemic risk, and capital flows can all distort this relationship for extended periods. But over the long term, monetary expansion is one of the key drivers of gold’s nominal price. And global liquidity remains at historically elevated levels. (StreetStats)

But I think the bigger story lies elsewhere. The world is facing a major debt problem. If this debt crisis eventually leads to aggressive monetary intervention, lower real rates, government bond purchases, and more liquidity creation, what is a risk for gold today could become one of its strongest drivers of growth in the medium term.
Put simply: A debt crisis can push gold lower in the short term. But if policymakers respond by creating more liquidity, that same crisis could become the fuel for gold’s next major rally. And perhaps that is why valuing gold simply by looking at today’s price doesn’t tell us the whole story.

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@RezaMacroEdge