Politicians and central banks have often attributed recent inflation to factors like the COVID-19 pandemic and supply chain disruptions. However, a growing body of economic commentary points to the surge in global money supply, driven by continuous debt issuance, as a primary factor behind persistently high inflation.
According to The Kobeissi Letter, the combined money supply in the U.S., Euro Area, Japan, and China recently reached a record $89.7 trillion, with $7.3 trillion added over the past year alone. This marks the largest annual increase in three years, comparable to the response seen during the early stages of the pandemic. In the U.S., the money supply has ballooned by $410 billion year-over-year, bringing the total to $21.2 trillion. To put this in context, U.S. money supply levels are now 27% higher than they were at the start of 2020, underscoring the return of “global money printing.”
Since the onset of the pandemic, the expansion of global money supply has been staggering. The U.S. dollar alone has lost 25% of its purchasing power over the last four years, dismantling the notion that inflation would be “transitory.”
Amid growing federal debt and financial commitments, the U.S. continues to face an uphill battle. Public debt has reached a record $35.7 trillion, with a staggering $345 billion added in just three days, according to The Kobeissi Letter. Since June 2023, federal debt has surged by $4 trillion, outpacing U.S. GDP growth by nearly three times. Financial analysts, including Jon Markman, have criticized the unsustainable rise in debt, comparing it to managing household finances irresponsibly: “You’d be bankrupt by lunch and still buying lobster for dinner.”
Globally, debt levels are also climbing. Visual Capitalist reports that global debt hit a new high of $315 trillion in Q1 2024, with mature markets contributing $209.7 trillion of that total. The rapid accumulation of debt has significant implications for inflation and monetary policy worldwide.
In this environment, gold has emerged as a top-performing asset. Since October 2022, the precious metal has appreciated by 64%, driven by robust demand from central banks and retail traders. After months of outflows from gold ETFs, demand reversed in July and has since soared. The Kobeissi Letter notes that cumulative gold ETF inflows have reached $3.3 billion since August, while the popular $GLD ETF has recorded $644 million in inflows year-to-date. This surge has put gold on track for its best annual performance since 1979, with prices up 28% this year. Gold miners ETFs, such as $GDX and $GDXJ, have also seen substantial gains of over 30%, marking their best year since 2020.
As of late September, gold hit its fourth consecutive record high, climbing 30% on the year to $2,662 per ounce, according to ZeroHedge. This performance makes gold the best-performing major asset class of 2024, even surpassing Bitcoin’s gains. Bitcoin has risen more than 40% this year, despite trading below its March all-time high. Analysts expect further gains for Bitcoin, which has historically rallied alongside increases in the M2 money supply, albeit with a slight delay.
Looking ahead, analysts anticipate that gold’s rally could continue as global money supply increases. Historically, gold bull markets have outperformed money supply growth, and many believe that the current rally has more room to run. If the yellow metal follows past trends, its price could see a significant jump as the bull market progresses.
The persistent growth of global debt and money supply remains a key driver behind the surge in gold and other inflation hedges, with analysts predicting further gains for both gold and Bitcoin in the near future.
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