Gold and Money Velocity

THE PRICE OF GOLD jumped 8% this last 2days, while world stock markets also pushed higher and the US Dollar dipped from a 6-month high on the currency market.

Gold dealers observed a "strong physical demand" in Asia: China and India. Finally, we can see some effect on price after the money supply increase. This effect has a lag of about 6 months. Gold price is also a good indicator for the future velocity of money – the rate at which money changes hands as it is spent – and the future inflation, particularly in the United States. But shall Gold investors be concerned about more quantitative easing policies which may lead to an increase in the velocity of money and of inflation?

Well, it is well known that there is a decrease of Money Velocity during recession time.  However during the last quarter of 2009 we have noticed a slight decrease of money velocity (or increase in money demand). This is the logical manifestation of a global rise in confidence; people may realized that the precautionary savings that they had were more than sufficient given all the signals of improvement in the global economy.

About Money Demand, the most interesting is how it correlates with the price of gold and the CPI...