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Gold vs. The Federal Reserve.

Updated: Mar 6

The image below is a chart that compares historical gold spot price (2003-2020) and the federal reserve balance sheet. Along with recession markers.

The Gold Spot Price Chart, Compared to the Fed Balance Sheet Chart. 2003-2020.
Gold & Fed Balance Sheet Comparison Chart
 

Fed Balance Sheet Summary

  • The Fed balance sheet is essentially the breakdown of assets and liabilities held by the US government Federal Reserve.

  • Weekly report, every Thursday.

  • Shows when and how much money is being injected into the economy.

  • Fed can electronically print money at will to expand balance sheet. Uses that money to buy treasury notes, etc.

 

The graphic above shows just what kind of impact fed balance sheet expanding does to the prices of precious metals (gold for comparison). It is important to note the recession markers to show trends during, and post, extreme conditions.


During times of economic recession, the Fed pumps in more money to the banks in order to re-stimulate economic growth within the country. In order to do that they can, at will, electronically print money to inject into the centralized banking system (JPMorgan Chase, Wells Fargo, Bank of America, Citigroup). These banks can then lower interest rates which entices buyers to purchase homes, and take out loans. That provides growth again. After the economic downturn, rates eventually rise and things can go back to "normal". Or so they think.

 

"We think the economy is going to need low interest rates, which supports economic activity, for extended period of time...it will be measured in years."

- Jerome Powell (Federal Reserve Chairman)

Powell's remarks on September 4th, 2020.


When there is extreme conditions as we see today during the COVID-19 pandemic. These are times of economic downturn that causes the Fed to put forth these tactics in order to stimulate growth and provide more money to the central banks. When in turn provides more money to the everyday citizen. Especially when there are major bailouts of corporations.

 

Safe Haven: an investment that is expected to retain or increase in value during market turbulence.

Gold and Silver, Coins and Bars.

Precious metals are often considered a "safe haven" investment. Often looked for during times of recession or economic downturn. Just like what we have here today.



 

As you can see from the chart. When the Fed expands the balance sheet, which we now know is injecting money into the banks, which flows into the economy. Precious metals tend to rise. There is a reason many investors use precious metals as a hedge against inflation. The trends are clear. There seems to be a direct correlation with the expanding of the sheet to gold spot prices. I believe this printing, at will, gets many investors and preppers buying precious metals in order to hedge their investments. This can drive up the price of gold and other precious metals. When that happens supplies become limited and dealers become overwhelmed. Such as APMEX ($299 order minimum) and JM Bullion ($199 minimum free shipping) among others. It can get very tough finding physical metals to purchase.

Cropped chart to show trends.
Original Chart Zoomed.

As the chart shows, when the balance sheet is being pumped up with more currency being created. Gold spot often spikes up along with it. When the sheet is steady or flat lining, so does gold. The Fed balance sheet can act as a useful tool when investing in precious metals and other safe haven assets. It can show hints on where to allocated investments during these extreme financial climates. The metals and other commodities will always tend to be at high volume trading in times of rising inflation not matter the slowing or accelerating growth of the economy.




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