During Asian trading on April 9, spot gold continued to trade in a narrow range, currently hovering around $1,650 per ounce. Although the near-peak of the U.S. pandemic has boosted risk sentiment, ongoing monetary and fiscal stimulus measures continue to underpin gold’s performance. In an article analyzing and forecasting gold’s outlook, Frank Holmes, Chief Investment Officer at US Global Investors, notes the following: President Donald Trump’s $2.2 trillion coronavirus relief package signed on March 27 is only the beginning. The Treasury Department is now seeking an additional approximately $250 billion to replenish the Small Business Loan Program, while hoping that the President and House Democrats can reach an agreement on a “Phase Four” spending package—likely focused on infrastructure.

According to Ed Hyman of Evercore ISI, as many as 285 economic stimulus measures have been announced worldwide over the past eight months—“far more than at any time in the past.” Japan only declared a state of emergency this week and on Tuesday approved a $1 trillion rescue package.

Last month, we projected that at least US$10 trillion would be required to mitigate the virus’s economic impact; now it appears that this threshold has already been reached, with even more work still ahead. And all of this was before accounting for monetary stimulus in the form of near-zero interest rates and quantitative easing (QE).

The U.S. economy is currently awash with excess money and liquidity. Compared with the same period last year, the broad money supply (M2)—which includes not only cash but also savings deposits, money-market funds, and other “money-like” assets—has expanded by about 12%, marking the largest increase in more than a decade.

All this excess liquidity is bound to find an outlet; historically, it has been the “Miracle-Gro” for gold prices.

Observe the chart below. There is a clear correlation between the year-on-year growth rate of the M2 money supply and gold prices: when the money supply increases substantially compared with the same period last year, gold prices tend to rise as well.