The M1 Money Supply in the U. S. has begun to rise for the first time since its highest point in early April of 2022, which could be promising for investors in precious metals. This trend is an indication that there is a potential for inflationary pressures and this always helps to push up the returns of assets such as gold and silver.
U.S Money Supply: Recent Trends: A Closer Look
The information from the Federal Reserve even if recent clearly illustrates that the U. S. monetary supply has been growing steadily from the beginning of the year and in particular since April. This change happens against the backdrop of the Federal Reserve’s preparation to decrease interest rates proving the transformation of the economic structure.
The journey of the U. S. money supply has been marked by several significant stages since the onset of the COVID-19 pandemic, each contributing to fluctuations in the country’s economic environment: The journey of the U. S. money supply has been marked by several significant stages since the onset of the COVID-19 pandemic, each contributing to fluctuations in the country’s economic environment:
- April-May 2020: M1 money supply which was around $4. 94 trillion jumped to an unbelievable $16 trillion in a month. This has led to apprehension of inflation especially as global expenditures started falling sharply.
- To April 2022, M1 supply has increased and reached almost $21 trillion, thus implying the continuation of existing quantitative easing policies.
- April 2022 – April 2024: The supply was influenced downwards when the Federal Reserve started to increase the interest rates hence reducing the money supply for the currency.
- Since April 2024: Money stock has somewhat levitated around $18 Trillion in the current period with too some bit pointing up.
- M1 money supply refers to the physical currency in the economies thus excluding balances in the Federal Reserve that would be considered as almost available liquidity in the economy.
The Stock-to-Flow Money Model Part Two: Implications for Precious Metals Investors
Of all these factors, money supply has moved higher for those investing in gold & silver. Literature suggests that the money supply, when has risen significantly in the past 2020, and has shown an inflation trend. These trends can increase the value of physical goods especially precious metals which are known to act as inflation buffers.
Since the M1 supply ramped up in April 2022 and even though the Federal Reserve has been able to implement deflation phases, the latest change in increasing the interest rate together with the increased supply of money may provide a bent for gold and silver investments.
Understanding Argentina’s Currency Crisis
When it comes to the influence of an increase in money supply one should turn to the example of Argentina which has faced such a problem as hyperinflation for several years. During the beginning of the 1990s, the inflation rates in Argentina rapidly increased, reaching 3000% per year at some point. This led to the collapse of the national currency, an increase in the level of poverty, and a drastic reduction in the purchasing power parities.
This issue has remained stubborn even with efforts to fix the country’s economy through measures such as the policy of austerity, the devaluation of currencies such as the introduction of Mexico’s peso, and the restructuring of the economy. Presently Argentina still suffers from high inflation rates, which sometimes hit 100 % per annum reducing savings, bringing down the living standards, and triggering social unrest.
The experience of Argentina also teaches people that inflation can be a danger to a country’s economy and that policy implementation of the monetary system is of paramount importance.
Regarding the US, Money Supply and Inflation What Next?
Looking at the recent trends of the money supply in the US, investors and policymakers have wait-and-watch mode. The relationship between interest rate, money supply inflation, and probably will define the economic trends in future years.
For those who have invested in precious metals, such knowledge could help to benefit from an active, volatile market in terms of precious metals. Thus, the threatened rise in money quantity in combination with possible cuts in interest rates may be the actual driver for the further price increase of gold and silver as assets that preserve value in inflation and economic insecurity.
