Gold Futures Bounce Back 12%, Analysis Indicates Undervaluation Compared to Money Supply

Gold futures have recently rebounded by about 12% from their recent lows, but analysis suggests they are still undervalued compared to the money supply. The December gold futures closed at $4,467.5 per ounce on the 12th. After dropping to $3,992.1 on the 16th of last month, they fluctuated around $4,000 before the recent rebound. Korea Investment & Securities reported that the ratio of gold prices to total money supply (M2) has increased from 2.3 in the 1980s to the current 5.8. A higher ratio indicates that the increase in money supply has not been matched by a corresponding rise in gold prices, or that the value of currency has expanded more significantly. Researcher Jeong Hyun-jong noted that while gold prices are approaching high valuations, they are still far from overheating levels. M2 includes a broad range of money supply, such as cash, demand deposits, and time deposits. The structure of gold demand is also changing, with a growing share of investment and central bank purchases. The proportion of gold investment demand, including gold bars, coins, and ETFs, has expanded from 29% before the COVID-19 crisis to 44% afterward. The share of central bank gold demand has also increased from 7% in 2020 to 17% at the end of last year. The World Gold Council revealed that in a 2026 survey on central bank gold holdings, 89% of respondents expect global central bank gold holdings to increase over the next 12 months. The expansion of central bank demand aligns with the trend of viewing gold as a reserve asset.

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