M2 growth rate in a decade with high growth 1970s 97

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M2 growth ratein a decade with high growth (1970s): 9.7% p. a.; probability of occurrence: 15%M2 growth ratein a decade with low growth (1990s): 3.9% p. a.; probability of occurrence 5%M2 growth ratein a decade with average growth (2000s): 6.3% p. a.; probability of occurrence 80%Adapt or perish, now as ever, is Natures inexorable imperative.H.G. WellsThe NEED to own gold, as opposed to the DESIRE to own gold will likely be a feature of the coming decade. Raoul Pal
Quo vadis, aurum? 84 LinkedIn | twitter | #IGWTreportThe implicit gold coverage ratio The implicit gold coverage of a currency is calculated by valuing the central banks gold reserves at the current gold price and relating them to the money supply. Over the long term, the gold coverage of the money stock M2 moves around 3.3%. It is noticeable that in times of declining confidence in the monetary system, the gold coverage ratio increases significantly. This was the case in the stagflationary 1970s and in 20072009 during the Great Financial Crisis and the subsequent sharp recession. For the three growth scenarios for the money stock M2 presented above, we have modelled a distribution function based on historical data. As the supply of gold/silver is relatively fixed, however, higher insurance demand implies higher prices. The bull market in gold and silver is primarily a bull market in financial insurance. John Butler05,00010,00015,00020,00025,00030,00035,00040,0001970197519801985199019952000200520102015202020252030M21970s1990s2000sSource: Reuters Eikon, Incrementum AGM2 scenarios, in USD bn, 01/1970-12/20290%2%4%6%8%10%12%14%19701975198019851990199520002005201020152020Gold coverage ratio of M2Source: Reuters Eikon, Incrementum AGGold coverage ratio of M2, 01/1970-02/2020Average: 3.3%
Quo vadis, aurum? 85 LinkedIn | twitter | #IGWTreportIf we now calculate a cumulative distribution function across all scenarios, the following picture emerges: Our expectation for the gold price at the end of the decade is around USD 4,800. The distribution is clearly skewed to the right. This means that significantly higher prices are far more likely than lower ones. Of course, quantitative models of this kind always have a certain degree of fuzziness. However, we believe that we have taken a conservative approach to calibrating the scenarios. Not least because of the unique global debt situation described in detail in this year’sIn Gold We Trust report,growth figures for M2 in the decade that has just begun are not implausible at the same level as in the 1970s. In this case the model suggests a gold price of USD 8,900 by 2030. 0%10%20%30%40%50%0.00%2.00%4.00%6.00%8.00%10.00%12.00%1970s1990s2000sSource: Incrementum AGSmoothed probability function of the scenarios, gold coverage ratio of M2 (x axis), probability of occurrence (y axis)1.0%5.6%14.7%18.8%19.6%14.4%10.4%6.6%3.9%2.9%2.4%0%5%10%15%20%Source: Incrementum AGApproximated gold price in 2030 by distribution probability, in USDProbability-weighted peak:4,821.80 USD
Quo vadis, aurum? 86 LinkedIn | twitter | #IGWTreportLet’s Trust in GoldAs you have gathered from our comprehensive report, we expect significant upheavals in the new decade with positive effects on the gold price.

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