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Inflation of the monetary supply is one of the key indicators to look at when determining where the gold and silver prices will go.

February 13, 2012 – Inflation of the monetary supply is one of the key indicators to look at when determining where the gold and silver prices will go. As you may know, for the past few years inflationary monetary policy, or bolstering the economy with newly created money, has provided the some of the best prices in gold and silver including a nominal high in gold of over $1,923. The creation of new money is the primary tactic of the Federal Reserve to stimulate the economy and has become the primary activity for which Ben Bernanke’s administration is known.

In the same timeframe since the extreme inflationary policy began, the prices of gold and silver have been skyrocketing. There is a simple and easy reason for this fundamental dynamic. The more money in circulation increases the nominal dollar price of things with inherent value. The gold supply has remained relatively constant over the past four years. What has changed is the supply of dollars, and this has led, in part, to a 600 percent increase in the price of gold over ten years.

There is no end in sight for the inflationary policy of the Fed. We know that they will be keeping interest rates low through 2014, and as this is intended to free up credit it is inflationary to an extent. As with the decision between the Fed, the Bank of England, the Bank of Japan, and the European Central Bank in early December, to swap dollars at artificially low rates that inflationary policy just takes on new masks from time to time. However, the price of gold and silver reflects those fundamental changes in the money supply. They are the best barometer for the health of a currency or a financial system.

This should give any prudent investor a great deal to think about in the current climate and with gold and silver prices reaching newer highs all the time. Why would you have your assets allocated in dollars, a flawed currency, when you know for certain that the central bank is diluting their purchasing power on a daily basis? There is no question about it. The M2 money supply is a published statistic and the times of greatest growth, such as this past July and August, are quickly followed by the greatest strengths in silver and gold. Gold hit the nominal high in late August and early September of 2011.

You can count on the Fed making the price of gold and silver rise as they create money.

Shannon King

Senior Staff Writer – GoldSilver.org

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