Why the gold bull run is probably not over?

Today, we will present a collection of 7 beautiful plots from different sources which will help us understand if the recent rise in gold prices are a bubble or not.

1) Comparison of the rally with previous bubbles: This is based on a comparison recently featured on Seeking alpha. The plot below shows that the recent rise in gold prices are nothing like those seen during bubbles seen during the gold hikes in the 70s or the NASDAQ in the 1990-2009 range. It also does not have the spikes that are characteristic of a bubble.




 2) Comparison of the price rises in gold and silver: This is also obtained from a Seeking alpha article. The figure shows that the relative growth of gold is well within 1 standard deviation (which is considered normal), while silver is off the charts.


3) Price of Gold needed to cover the US money supply: This graph intends to show the required rise in the price of gold to compensate the amount of money floating in the markets (say if the currency was supported by the gold standard). But basically, it shows that even in comparison with the issued money, and mined gold, the current price per ounce of gold is in limits.

4) Comparison with global financial asset (as a percentage): Gold still makes a very small percentage, even when compared with the historic data. Source frank-talk

5) Current holding of gold in pension funds: Is still very less, hence there is a potential for rise in this percentage.


6) Correlation between debt and gold: The plot below shows that the price rise in gold is commensurate with the increase in US Fed debt. This could be an indicator of the rise in demand for gold as the confidence of the investor in the US economy reduces. Since it is not expected that the US will wipe out this debt in a jiffy, and in the hopes that this correlation holds, this points that maybe the gold prices will hold or rise.

7)  Miscellaneous plots describing  the amount of gold investments as a function of money supply. The trends are indicative of cultures in different countries. Since the demand is fueled by growing economies such as India. We can expect the prices to rise even more.

Important to remember that the correlation does not imply causation. But in this case, as long as the correlation holds, things should be fine.

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