Has Gold Peaked? This Chart Tells a Different Story | Mike Maloney & Alan Hibbard

From this one, what I see is that the biggest move in precious metals is yet to come. It's just started. Hi, it's Mike Maloney and Alan Hibbard once again with the Gold Silver Show. Alan, how are you doing? I'm great, Mike. Thanks. How are you? Great. So you've got a presentation that you've put together based on a tweet that somebody made, correct? Yes, exactly. One of our viewers tagged us in a tweet and basically said that there's one type of ratio he wants to look at that he doesn't hear a lot of gold gurus talk about. So I figured we would make a dedicated video doing exactly that. Excellent. Yeah, so here's the tweet. This comes from MJL Texas. He asks, gold top? Has gold peaked? The ratio is right at the bottom of a long-term trend going back to the peaks in gold in the 1980s. This is M2 money supply divided by gold. Gold is actually pretty expensive versus the amount of outstanding currency, at least from a historical perspective. And he includes a chart from Incrementum. This is M2 divided by the gold ratio. And I will elaborate on this chart in just a second. We're going to see a lot of this chart throughout the video. Finally, he says, I've never heard any of the gold gurus quote this one. Plenty of debt to GDP discussion, but never have I heard a M2 money supply to gold discussion. This chart indicates that gold has peaked. So a very interesting concept. Mike, have you thought about this one before? M2 divided by gold? I believe. Yes, I've thought about it many times. And I have made videos on it in the past, not for a number of years now. It is one of the indicators that I use for myself. And I was going to do some backtesting on that combined with other indicators for our insiders program for a sell signal. I think it might be in my first book, but I can't remember here. But if somebody believes that they're going to stop printing currency and that gold has peaked, they should sell their gold and they should move into dollars. One of the ways to see whether or not this has peaked compared to the currency supply is to measure it against other indicators to see if it's peaked against those indicators as well. So we talked about this a little and you put together a whole bunch more stuff. Yeah. So the bulk of this video is actually going to be us looking at different charts and different trend lines, different ratios. And we're going to come at this from a few different angles. And one of the things I want everybody to notice here is in this chart, he's drawn a trend line here. The chart only has one date on it, 2004. And it's very skinny and tall. So show us your next chart here, your next tab. Yeah. My hypothesis is that this gentleman put this together on his phone. So I went to Incrementum's website and found the tool that he was using to build this chart. And it's an interactive tool on Incrementum's website. So if anyone wants to recreate this for themselves, they can feel free to do so. And if you look at it on your phone, it's going to be really narrow and it's going to look like this, which is what we just saw on that chart. And the only date is 2004. Exactly. I think that's how he created it. And then he added that red trend line himself. That looks like it's not perfectly straight. So he probably used his finger to drag it across the touch screen. So all good. Very sensible. Yeah. All good. No worries. So what I did is I found this data and I recreated it in Excel. Nice and clean and beautiful. In my opinion, it's beautiful, right? Excel charts are always beautiful. From Stock Charts and Federal Reserve. So Federal Reserve gave us the M2 and Stock Charts is the gold data. Excellent. So go ahead. And this is what it looks like. So we have a trend line here. And actually, on here, if that was touching and if both of the first and the second troughs were touching the trend line, there would still be room for gold to rise in price, which causes this line to fall, or for the currency supply to shrink, which would cause the black line to rise. Exactly. Yeah. So yeah. Okay. Yeah. So what I did is I drew this trend line as if the black line went a little bit lower, which is on the next chart here. So if the black line goes a little bit lower, it would touch there. And the reason I did that is because in January of 1980, gold hit an intraday high of $8.73, a closing price of $8.50, and this is monthly data. But on one particular day, gold outperformed. So I thought it would be interesting to look at both versions. You used $8.50. The one from Incrementum is monthly data, right? Yeah. So this is where we plugged in daily data in January of 1980 when gold peaked, but it's the daily close. It's not $8.73, the intraday. It's $8.50. So okay. Exactly. And that shows that we are right on the trend line right now. And if you think that this is going to determine… If you think then that gold is overvalued compared to the size of the currency supply, then you really should be selling your gold and moving into US dollars. And maybe some people think that. I'm not one of them. So let's move on. Okay. So for anyone who wants to know where this ratio comes from, it's pretty straightforward. We basically look at M2, and here we have in green M2 not seasonally adjusted. That's NS. So you can get that green line on the Federal Reserve website. And then gold is simply the price of gold. So price per ounce. And if you look at the vertical axes here, you will notice that this chart is logarithmic. So we actually have a… It's base four for anyone out there. You know, you multiply by four every time you go up to the next grid line. So it's actually on both sides. You multiply by four. And this logarithmic chart shows the changes in magnitude more clearly than a linear chart would. Yes. And here, what you see in 1980, is that one of the things that log does for us is every inch on this graph or every, you know, whatever measurement you're going to take, half inch if you're looking on your cell phone, quarter inch, or on a big computer screen, two inches, there's that big difference. If you've got to look absolutely vertically from the peak in 1980 to the distance to the green line, and then take a look at the difference in the distance in them today at the end of the graph, tiny by comparison, minuscule. So gold is nowhere near as overvalued, you know, according to the chart. They are actually very close now. The size of the bubble that gold went into, the percentage of global financial assets that it was in 1980, is very, very different today. Nobody really owns gold. It's not a huge percentage of financial assets. It's very small. And so I know we're not comparing it to financial assets right now. We're comparing it to the units of currency that exist. But what this shows you is that because the others were drawn in a linear scale instead of logarithmic, where you're not seeing the percent change, you're seeing the amount change. That sort of fools us a little bit. Here, you're seeing the actual percentage change. So every inch on this graph is the same percentage change as the previous inch, where on a linear graph, it's not. And so, okay. So keep on going. And to your point, Mike, the amount by which gold is overvalued right now is even smaller than it was in the first half of the 1970s. Wow. We still had another half of the bull run left back then. And look at that. In the first half of the 1970s, it retraced until it touched the currency supply, and then rose. Now, again, this is the price of gold, percentage change, and the quantity of M2, right? Yes, exactly. Okay. Yes. So we can actually look at that same thing on a much longer timescale, going back almost to the Civil War. And you see here that we have two different lines for M2, because it's hard to find single continuous data sets that go back a long time. Usually, you find pieces of it, and then you have to splice them together yourself. And I just chose to keep them separate here so people could see that they're similar but different. Yeah. It's just the way they were calculating the total of M2 back then versus today. So for the audience, we will probably do an adjustment here, figure out the two different ways that it was calculated, and be able to adjust one of these data sets to splice them together evenly. But they're so close that it still works to divide these things, doesn't it? Exactly, yeah. And it's also somewhat convenient, you might say, that the price of gold was fixed. There's basically a flat line for these different segments of history, so it makes it easier when you divide it. You can sort of get around these splicing problems a bit more easily than you otherwise could. OK. So the first data set that Incrementum used and the guy that did the tweet, that's the light green line on the top that ends at 1960. Yep, exactly. That's what they used. So I dug up this other one from historical statistics of the United States, and it goes back even further. OK, excellent. Yeah. And when we divide them together, we get this. This is a long-term version of that same chart that our viewer showed us from Incrementum, M2 divided by gold. But this is annual data, so it's not quite as descriptive, not quite as volatile, let's say. OK. Yeah. And you can see, like, if I just look at this, if you hid the title from me so I didn't know what I was looking at, I would say something very significant happened about halfway through this chart where it almost seems like two different data sets. And I'm not talking about splicing, right? I'm not talking about splicing the other two different things. Right. You're talking about August 15th, 1971. Exactly, yes. Because you see curves. It's like the first half is a very curvaceous trend, and then it's like triangular. It's jagged. It's like something weird happened here where it's almost like you're measuring two different things. There was also a very smooth line going up to 1913, and then it changed direction. What happened in 1913, 1914? Oh, boy. And the Fed. They're screwed with our data. Right, right. So OK, yeah, let's move on. So what we can do here, if we draw a similar trend line to what our viewer had. Again, this is annual data, so it's not quite as granular. But if we do draw a similar trend line, it would appear that we're breaking through it right now. Wow, time to dump your gold and accumulate dollars. Now, didn't the big, beautiful bill just raise the debt ceiling by $5 trillion? You know, when I wrote my first book, the debt ceiling was, I believe, at $7 trillion, and now we just raised it by $5 trillion from where it was. Oh, my goodness. I mean, these numbers don't make any sense. No, they don't. It's not a laughing matter, but I don't think you have a choice. You have to laugh. I don't know what else you could do. Yeah, otherwise you cry. Yeah, yeah. What is that quote? Life is a comedy to those who think and a tragedy to those who feel. Wow, I've never heard that. Yeah, I forget who it is. Otherwise, I'd attribute it, but yeah, it's a good one. Okay. Anyways, all right, moving right along here. Another way of looking at these two assets. We have M2, the same two lines, the same two green lines we looked at before, but here we're looking at the amount of gold in the treasury. So this isn't just the price of gold. So this is just ounces, or it's the ounces times the price? Ounces times price to get a dollar value of gold in billions. So this $1,000 here is $1,000 billion or just shy of a trillion. That's where we're at today. Okay, and is that... Okay, so just shy of a trillion, and that's measured with the free market price, not the statutory price. Correct. Okay. Well, we just did several videos on the possibility of heading toward a gold standard. And if that's correct, then here, gold is severely undervalued. That's to make up a lot of ground. Yes, exactly. Yeah, that's a lot. So this is 10x, so that's at least double. And since it's log, it's harder to do this in my head. But yeah, that's probably at least double. Double, double. Yeah, that's at least double. And normally, it becomes overvalued before. It's more than double, I think. Yeah, especially because this is below $1,000, so... Yeah. Well, $1,000 is... Yeah, okay. Yeah, so let's divide these together and see what we get. It looks like this, M2 divided by the value of treasury gold. And I've added a trend line here. And we're just below it, just barely. Again, annual data, so not super granular. But this is what we come up with. Okay. I'd like to point something out, too. If you look after August 15, 1971, when the first big peak there, and then it drops down, and we get a... Let me see what was happening. That was the gold rising, and then gold fell and created... So we're looking at gold basically upside down here. So gold was going up in price, causing the line to fall. And then gold peaked in the last day of 74. And then from the first day of 1975 until, I believe, August of 76, gold fell by half. It had gotten up to $200, and it fell down to $103 in August or September of 1976. And so that causes that peak. Then it went all the way down to the bottom of that trough, January 1980. And then it goes up again. And it's not gold going up. This is gold falling. And then gold does a dead cat bounce and rises again and then falls. And you have an inverse head and shoulders pattern. And if you drew a neckline, which is a trend line, a neckline across those two peaks, you flip it upside down. It's predicting a move rising. And it way exceeded that. Now, that was predicting that gold would fall and the dollar would rise. Now, take a look at what we've got going on today. We have another slanted, not inverse, but a normal right side up head and shoulders pattern. And we've just broken the neckline. That trend line that you're drawing isn't just a trend line. It's a neckline on a tilted head and shoulders, which is predicting that we should... This is, once again, a linear graph. And so if this was logarithmic, what it would be predicting, probably, is a return to the balance, the type of balance that we had back before 1960. What would be the average before 1960? About 7, 8, 6? Yeah, 7-ish. Right, right. Do you see that? There's a right side up head and shoulders in this chart. Yeah, exactly. And so there's a lot of different ways of looking at this from a technical perspective. You can say, yes, it's broken a trend line. And that would mean that either it's overvalued and you should get out of gold, or you should accumulate as much as possible because it's going to make this enormous move coming up right away because it just broke this head and shoulders. Yeah, could be either or. So what's next? All right. Well, I want to talk about the Dow Gold Ratio. OK. This is a great way of throwing in a confirming indicator. Do you believe that you should get out of gold, that the dollar is going to outperform it? If the dollar does outperform it, we should have a great economy. Stock market will just continue on up into a bubble. Now, there are so many ways of measuring the stock market, and there isn't one of them that you can find that doesn't say that it's in a gigantic bubble. And it's only PE ratios that show it being less than the greatest bubble in stock market history globally. There is no bigger bubble than what we've got going on, except when you measure it with PE ratios, then it's like the second largest bubble in history that it's been in. So there is a trend line. And if it's true that the trend line is the signal that suddenly one asset class is overvalued against another or the currency undervalued against gold being overvalued because gold hit the trend line, well, gold hit the trend line here against stocks. But I think you've got another graph, don't you? Yes, I do. So basically, my point is, the point I would make here is that, yeah, this is breaking, just barely breaking the trend line. I don't think this is the right trend line to draw, in my opinion. Yeah. I think this long-term trend line around the bottom is the right one to draw. Exactly. And from this one, what I see is that the biggest move in precious metals is yet to come. It's just started. Now, again, this is a logarithmic graph, and so percent change. And if you think the rise from the year 2000 to 2011 was breathtaking, then you haven't seen anything yet. The rise that we've had over the past year and a half is just the beginning of something absolutely enormous. And so if you do think that there's the possibility of a monetary reset, you may want to be rethinking, is gold overvalued or not? Because the only conclusion I come up with is, no, no, no, no, no. It's still the dollar that's overvalued. And do you think that there's a possibility that we could go into a recession right now? If you do, then they are going to be—if the Fed senses anything wrong in the economy, they've shown their hand. There's only two things that they can do. Light up the printing presses and drop interest rates to zero to influence the banks to light up their printing presses. Actually, they're—I don't know what you would call a number duplicating machine. It's just a computer. You're typing in numbers. Bank credit. And so anyway, any comments on this? They're M2 boosters. They can fire up their M2 boosters. They can expand M2 faster than we can expand the supply of gold. If they can get people to make loans. What happens, though, is when things go really bad, the banks get scared. And even though the Fed drops interest rates to zero, the banks may not go out and want to be willing to make loans. That's the only way M2 gets expanded, is by the banks creating more bank credit, because that is basically what M2 is. Well, that may happen. And if it does, that could be the reason why the ratio we've been looking at throughout this video, why it does revert. So we'll see. We'll see what happens. Okay. I want to end with a meme here from Chris Martinson. What happened to the Fort Knox gold audit? It was canceled due to lack of resources. I think they're busy replenishing those resources right now. That would account for all of the gold flows that we have seen. They're ending. These central bank leases have terms on them. They've got to end these contracts so that the gold is not rehypothecated. It'll be very interesting to see when an audit finally does happen. And if we are headed toward any type of gold standard, anything related to gold, because the world's central banks, especially in the eastern hemisphere, they are collecting gold at a frantic rate. And it shows that the world's central banks think that something is up. And so we may be headed toward, and the fact that gold just overtook the euro as the second largest central bank reserve, and this just says to me that we could be headed toward something where gold is involved in the future when this monetary reset happens, that there is a transition coming. And it's natural. We had one in 1921 or 1922 where the world went on a transition after World War I. Different monetary system. Then it broke down at the end of the 30s and after World War II. Different monetary system. And then 1971. Different monetary system. And they're very different monetary systems. The other ones affected, they didn't affect the common man. They affected any international businesses, and they affected countries and banks. The average person didn't even know they were happening. But when it comes to this transition, the other ones were little baby steps off of gold. This one is going to be one huge step back onto something real, something that all of the different countries can trust each other with, something that can't be created out of thin air. And if that happens, it's an enormous step that everybody on the planet will feel. Absolutely. Well, thank you, Mike, for your expertise and all your perspectives in this video. And thank you to everyone for watching. And thank you to our viewers for sending in your comments. Appreciate it, guys. Thanks. Bye.