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USAGOLD/Peter A. Grant/01-10-17
Gold extended to the upside in early New York trading to reach a new 6-week high of 1190.61. The yellow metal has been buoyed by good physical demand early in the new year, with an additional tailwind provided by a dollar and stock market that may be looking a little toppy.
Coin News Net reports that first day sales of 2017 America Silver Eagles surged 36% versus last year. Silver Eagle sales reached 3,747,500 for that one day, surpassing last year’s total 2,756,500 coins; which marked the beginning of a pretty robust first-half of 2016.
First day Gold Eagle sales were 68,000 combined ounces. That marks a 13.3% increase over the 60,000 ounces sold on the first day of availability in 2016.
We noted late in 2016 that things seemed to be shaping up very similarly to last year, where the metals bottomed late in the year near a Fed rate hike. The rise seen since the mid-December lows and the impressive surge in America Eagle demand further validates that outlook. Gold is up more than 6% from the lows, while silver is up more than 8%. Both metals are trading comfortably above their 20-day moving averages. Gold slightly exceeded its 50-day moving average today, while silver has broken through convincingly as it moved within striking distance of $17.
In a SeekingAlpha article I posted earlier today, the author notes: “The reason why gold always moves higher over the long term is because the money supply is consistently expanding.” He goes on to say, “It’s the growth of M2 that ultimately determines how much gold is worth (in USD).”
So let’s take a peak at where gold is relative to M2:
Wow! If M2 growth is really the ultimate determinant of the price of gold in dollars, it sure looks like gold is grossly undervalued. The recent rebound in gold demand may be in part due to investors’ recognition of this reality. The acceleration in M2 growth also suggests to me that the dollar has become overvalued as a result of even modest monetary policy divergence.
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