CHART: $9 trillion monetary expansion not keeping gold afloat

The gold price on Thursday continued to drift lower with the metal’s no-taper rally a week ago quickly becoming a distant memory.

In afternoon trade gold was changing hands for $1,323 around the same level it was trading at ahead of the surprise announcement by the US Federal Reserve that it’s continuing its economic stimulus program unchanged.

If the Fed continues to print money at the current rate of $85 billion a month and do not announce cuts to its quantitative easing program when it meets in October, the US central bank’s balance sheet would top the $4 trillion mark by the end of the year.

The US has not been alone in printing money and together with the Bank of Japan, the European Central Bank and the Bank of England, more than $9 trillion of easy money is now sloshing around in the system.

Monetary expansion, particularly since the financial crisis, has been a massive boon for the gold price. Gold was trading around $830 an ounce before Chairman Ben Bernanke announced Q1 in November 2008.

Gold and the US dollar usually moves in the opposite directions and gold’s perceived status as a hedge against inflation is also burnished when central banks flood markets with money.

Ross Norman, ex-trader for NM Rothschild and Credit Suisse and owner of bullion brokers Sharps Pixley, has an excellent new presentation out about the state of play in the gold market.

Norman points out that the gold price for the most part mirrors monetary expansion, but that the relationship has now broken down even though the printing presses haven’t stopped.

FLASHBACK: How short seller’s ‘shock & awe’ crushed gold with a 400 tonne trade.