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Gold’s Safe Haven Value Strongest When Fed Prints Money

Posted By Isaac Nuriani |

There’s no shortage of talk about gold’s appeal as a safe-haven asset. But sometimes the thing gold provides refuge from is lost in the conversation.

Typically, people think of safe havens as places to move their money when financial markets are being rocked. Gold certainly has provided refuge as a safe haven during periods of market volatility. Here are a couple of examples:

  • In the 2008 financial crisis, the S&P 500 declined just over 50% from October 2007 to March 2009. As that happened, gold increased a solid 25%.
  • In the last quarter of 2018, the S&P 500 tanked 15% from a sudden case of jitters stemming from the U.S.-China trade war. At the same time, gold climbed 8%.

Gold also is thought of as a safe haven refuge from geopolitical troubles. Take gold’s reaction recently when some people thought the U.S. and Iran might enter into a direct shooting war. During the first week of January this year, gold spiked 6% when tensions rose and the two countries traded missile shots in Iraq. That particular jump in gold prices proved to be short-lived, which is typical in cases of geopolitical dustups. Unless a crisis morphs into something more significant, the rise in gold it triggers doesn’t tend to last. The point is that, as long as such crises remain in play, gold’s standard response is to go up.

Sometimes gold’s safe-haven benefit is useful against threats that are not quite so obvious. But they still can be exceedingly dangerous to your savings. One of those threats is a practically unchecked growth in the money supply that has been going on lately courtesy of the Federal Reserve.

The Fed has committed to doing whatever it takes to “heal” the economy from effects of the pandemic. That commitment includes flooding the money supply with more greenbacks. It sounds good from their perspective, but not necessarily from the perspective of retirement savers. When new money enters the economy, astute savers justifiably become concerned about dollar debasement and inflation. And they smartly turn to gold for protection.

Forbes: Growth in Money Supply “Like Miracle-Gro for Gold Prices”

In a recent Forbes article, Frank Holmes explains just how enthusiastic the world’s central banks have been lately about printing money. They are, of course, printing all that money in an effort to keep the pandemic’s worst case scenario at bay. Holmes notes the central banks of the Group of Seven (G-7), the world’s seven most advanced economies, collectively purchased 2.5 trillion dollars in March and April. It’s interesting to note that 1.3 trillion dollars of it was purchased in April alone. That’s five times the previous monthly record of 270 billion dollars bought in April 2009, in the midst of the 2008 financial crisis.

As for the U.S., its own asset-buying binge has been nothing short of spectacular. The Federal Reserve’s balance sheet is now over $7 trillion and motoring higher. For perspective, Holmes informs his readers the current figure is equivalent to one-third of the entire U.S. economy.

Unsurprisingly, the M2 money supply has been soaring. The M2 money supply is comprised of the bills and coins circulating throughout the U.S. economy, checking deposits and “near money.” Near money includes savings accounts, certificates of deposit, money market funds and money market accounts. Holmes points out that the M2 money supply has increased by more than 23% in the last 12 months. That’s the largest such increase on record.

Increase in M2 Money Supply – May 2019 to May 2020
(Chart Courtesy of the Federal Reserve Bank of St. Louis)


Here’s an interesting comment on all that M2 growth from Holmes: “Growth in M2 money supply…has historically been like Miracle-Gro for gold prices,” he writes. More about that shortly.

One other feature of Holmes’ article is worth mentioning. It’s an excerpt of an exchange between newsman Scott Pelley and Federal Reserve Chairman Jerome Powell during Powell’s recent appearance on CBS’ 60 Minutes.

SCOTT PELLEY: Fair to say you simply flooded the system with money?

POWELL: Yes. We did. That’s another way to think about it. We did.

PELLEY: Where does it come from? Do you just print it?

POWELL: We print it digitally. So as a central bank, we have the ability to create money digitally. And we do that by buying Treasury bills or bonds for other government guaranteed securities. And that actually increases the money supply. We also print actual currency and we distribute that through the Federal Reserve banks.

What struck me, in part, was Pelley’s apparent disbelief at how easily money is created by the Federal Reserve. “Where does it come from?” he asks Powell. “Do you just print it?” There’s no real foundational basis for the money created by the Fed beyond the mere decision to print it. And it’s something even someone as experienced and worldly as Scott Pelley seems to struggle with.

The exchange also underscores the tangibility and genuine nature of gold, as well as its property as a safe haven. As Holmes puts it, “We can’t just print more gold, digitally or otherwise.”

Gold Can Be Your Life Preserver in a Dangerous Sea of Easy Money

The Federal Reserve balance sheet grew from 4.7 trillion dollars to slightly more than 7 trillion dollars over the past two months. At the same time, gold climbed 15.5%. If you widen the timeline it’s even better. Gold owners have been treated to a 30% price increase since late June 2019. That’s when the Federal Reserve most recently changed course on interest rates and announced rates were headed back down. A similar gold price spike happened when the Fed initiated two rounds of quantitative easing during the 2008 financial crisis: gold skyrocketed more than 160% from 2008 to 2011.

Gold’s capacity to strengthen in the face of volatile markets and geopolitical crises is well-documented. But so, too, is the metal’s tendency to surge against an inflated money supply and highly accommodative monetary policy in general. In fact, that may be the best example of the metal’s service as a safe haven.

The Fed is on track to continue the record growth of the nation’s money supply. Which means it could be an excellent time for retirement savers to add gold’s multifaceted safe haven protection to their portfolios.

For straightforward, no-nonsense information on how to do that, call Augusta Precious Metals at 800-700-1008. When you contact Augusta, you’ll be in touch with a network of knowledgeable customer success agents and economic analysts. These professionals are well-versed in the array of diverse threats to your portfolio. Fortunately, they’re also very aware of the ways gold and silver’s natural safe-haven properties can protect it.

If you’re a retirement saver with a portfolio of 100,000 dollars or more, you’ll receive our complimentary guide on retirement protection. You’ll also get to sit in on Augusta’s exclusive Profit & Protect Web Conference. This presentation on portfolio security is hosted by Augusta Precious Metals senior economic analyst Devlyn Steele. Mr. Steele is known for predicting the 2008 financial crisis as well as the precious metals surge that immediately followed it.

Is gold the ultimate safe haven? Given the range of threats from which it has demonstrably offered protection, a case could be made that it is. But it may be as a shelter from Federal Reserve cash floods that gold best serves the portfolio protection needs of retirement savers. Contact Augusta to learn more.

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