Gold Surges Driven Central Bank Printing Presses

Gold is on the cusp of clearing its previous all-time high from a few weeks ago. With world central banks having printed as much money as they did, gold is still underpriced

Over the past few years, the price of gold has surged higher. There are several fundamental reasons for this:

• Gold mining supply production underperforms demand;

• Central banks have created massive quantities of paper, and this will continue to propel gold higher;

• Central bank demand has increased significantly relative to past buying; and,

• On a relative basis, gold is well below its potential price levels.

Gold still has considerable upside potential. I have been long metals in many ways over the years, including regularly buying coins and stashing them under my mattress.

However, when I take a step back and look at the bigger picture, what I see is a fundamental shift with significant potential.

Gold Breakdown

I did a simple query into ChatGPT and asked this:

What is current gold mining production relative to demand

This is the response I got back:

📊 Key Figures (latest full-year data from 2024):

• Global gold mine production: ~3,400–3,600 metric tonnes

• Total gold demand: ~4,400–4,700 metric tonnes

  • Major components of demand:

    • Jewelry: ~45–50%

    • Investment (bars, coins, ETFs): ~25–30%

    • Central bank purchases: ~15–20% (recently increasing)

    • Technology: ~5–7%

🔁 Supply Sources:

• Mine production: ~70–75% of total supply

• Recycled gold (scrap): ~25–30%

• Net official sector sales: Very limited; central banks are typically net buyers

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⚖️ Supply vs. Demand Balance:

• Mine supply alone does not meet global demand.

• The gap is typically filled by:

  • Recycled gold (secondary supply)

  • Central bank sales (rare)

  • Market drawdowns or increased prices (to incentivize recycling)

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📈 Trends to Watch:

• Mine production is relatively flat due to:

  • Aging mines and lack of major new discoveries

  • Environmental and regulatory constraints

  • High costs of exploration and development

• Demand is growing, especially from:

  • Central banks (notably in emerging markets)

  • Retail investment during times of economic uncertainty

These are interesting statistical data points. I am diligently trying to locate the specific individual data points so that I can reference them and learn as much as possible. One thing to be aware of is that if you do use ChatGPT, it sometimes generates information out of thin air. I don’t invest my money in fictional references.

Nonetheless, it is possible to look at the simplest economic points to see where gold could be going.

First, the following chart shows the price of gold and the US M2 money supply:

The most important thing to note about this chart is that I inflation-adjusted both the price of gold and the money supply back to the mid-1970s. I don’t see too many charts adjusting the price of money to inflation.

It was just recently that gold pushed through the previous all-time high price level from the 1980s. Inflation-adjusting the price allows you to see this more clearly.

If you base the price of gold relative to the money supply, there is no indication that gold is overbought.

If, then, you look at the individual data points that ChatGPT returned to me, the fundamentals indicate that demand would drive the price of gold up.

My takeaway?

I don’t look at the price of gold as a hedge against inflation, as the popular moniker states. Instead, I look backwards at it, and by doing that, it gives a better angle:

The printing presses have been so active that they are now fundamentally broken, and gold would merely catch up to the amount of paper printed.

That is how I see gold. Inflation is coming because of the actions of world central banks, and demand for hard assets will increase, outpacing the current equilibrium price and supply available.

The Chinese, whether it is the central bank or individual investors, are pouring money into Chinese gold-based ETFs. Individual investors are propelling prices higher on their own. The Bank of China's diversification into gold has pushed gold to eclipse the euro as the second-largest reserve holding for central banks.

Because gold is surging, gold will continue to surge

The move into gold may be a bubble. Maybe. But, note this: Bubbles are a herd mentality move. The herd is moving. Because the herd is moving, others will join in. And the price of gold will continue to rise.

I do not see gold being overbought. Instead, I see a herd that si moving, and on an inflation-adjusted basis, very easily gold prices could move much higher and still be under-priced.

I will continue to provide more input on this.