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30 Years of U.S. Money Supply and Interest Rates

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money supply and interest rates

30 Years of U.S. Money Supply and Interest Rates

Money supply and interest rates are important macroeconomic factors that can change the direction of entire economies.

In the United States, the Federal Reserve, also known as the Fed, uses open market operations to influence these factors and fulfill its “dual mandate” of maximum employment and stable prices.

But how is money supply associated with interest rates?

How Money Supply Affects Interest Rates

Interest rates determine the cost of borrowing money in an economy. The higher the interest rate, the more expensive it is to borrow money, and vice versa.

By the law of supply, when there is less money in the economy, the cost of borrowing money tends to be higher. All else being equal, a decrease in money supply corresponds to higher interest rates, and by contrast, an increase in money supply tends to put downward pressure on interest rates.

Central banks use monetary policy—the macroeconomic policy that manages interest rates and money supply—to improve economic health. However, the nature of the monetary policy differs based on the state of the economy:

  • Expansionary Monetary Policy
    Expansionary monetary policies aim to stimulate economic growth by increasing the money supply, lowering interest rates, and increasing demand, spending, and investment in the economy.
  • Contractionary Monetary Policy
    Contractionary policies aim to slow down unsustainable economic growth and inflation by decreasing the money supply, increasing interest rates, and reducing spending while facilitating saving.

Today, the U.S. Fed is employing expansionary monetary policy, with near-zero interest rates and some of the fastest growth rates for M3 money supply ever seen.

But how has the Fed’s monetary policy changed over recent decades?

Economic Booms and Busts in the U.S.

Between 1990 and 2020, the U.S. money supply (M3) increased from around $3 trillion to $19 trillion, a rate that far exceeds that of economic growth.

During this time, the U.S. economy went through major shocks that affected its monetary policy.

The 2001 Recession

Internet and tech-based companies came to dominate the U.S. economy by the end of the 1990s.

During the same period, the Fed eased its monetary policy, with the goal of reducing interest rates and increasing liquidity in the economy. Excess money supply also went into the stock market, propelling the NASDAQ index to new highs at the time.

To curtail rising inflationary pressures and an overheating stock market, the Fed raised its Fed funds rate target six times between June 1999 and May 2000, reducing money supply growth. This, in turn, slowed down the flow of capital into the stock market in the lead-up to the dot-com crash and the recession that followed.

The 2008 Financial Crisis

The 2008 recession was the most severe economic downturn in the U.S. since World War II.

In an effort to spur the economy out of recession, the Fed dropped its rate target from 3.5% in January of 2008 to near-zero rates by the end of the year. Additionally, it also started a series of large-scale asset purchase programs (also known as quantitative easing), accelerating money supply in the economy.

From the end of 2008 to 2015, the Federal Open Market Committee (FOMC) established near-zero targets for the Fed funds rate in order to support economic activity and job creation.

The 2020 Recession

The pandemic-induced recession of 2020 called for policymakers and central banks around the world to take action.

In response to the financial turmoil, the FOMC dropped its Fed funds rate target by 1.5 percentage points to a range of 0% to 0.25%. It expects these near-zero interest rates to stay until 2023. Furthermore, at the end of 2020, M3 money supply was up by almost 25% year-over-year, the largest yearly increase since 1961.

The Fed’s response to economic turmoil involves large changes in money supply and the Fed funds rate, which affects not only the short term but also the long-term direction of the economy.

The Future of U.S. Money and Interest Rates

An economy’s money supply has a strong association with the currency’s purchasing power and inflation, although there are other factors at play. As the number of dollars in the economy increases, the amount of goods and services that can be bought with one dollar falls as price levels rise.

Due to the policy response during the pandemic, inflation has become a growing concern for investors and consumers alike. With money supply at unprecedented highs and interest rates near all-time lows, it’ll be interesting to see how long it takes for the U.S. economy to recover and rates to rise again.

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Real Assets

Charted: The Value Gap Between the Gold Price and Gold Miners

While gold prices hit all-time highs, gold mining stocks have lagged far behind.

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Line chart comparing gold price and gold mining stocks since 2000.

Gold Price vs. Gold Mining Stocks

This was originally posted on our Voronoi app. Download the app for free on Apple or Android and discover incredible data-driven charts from a variety of trusted sources.

Although the price of gold has reached new record highs in 2024, gold miners are still far from their 2011 peaks.

In this graphic, we illustrate the evolution of gold prices since 2000 compared to the NYSE Arca Gold BUGS Index (HUI), which consists of the largest and most widely held public gold production companies. The data was compiled by Incrementum AG.

Mining Stocks Lag Far Behind

In April 2024, gold reached a new record high as Federal Reserve Chair Jerome Powell signaled policymakers may delay interest rate cuts until clearer signs of declining inflation materialize.

Additionally, with elections occurring in more than 60 countries in 2024 and ongoing conflicts in Ukraine and Gaza, central banks are continuing to buy gold to strengthen their reserves, creating momentum for the metal.

Traditionally known as a hedge against inflation and a safe haven during times of political and economic uncertainty, gold has climbed over 11% so far this year.

According to Business Insider, gold miners experienced their best performance in a year in March 2024. During that month, the gold mining sector outperformed all other U.S. industries, surpassing even the performance of semiconductor stocks.

Still, physical gold has outperformed shares of gold-mining companies over the past three years by one of the largest margins in decades.

YearGold PriceNYSE Arca Gold BUGS Index (HUI)
2023$2,062.92$243.31
2022$1,824.32$229.75
2021$1,828.60$258.87
2020$1,895.10$299.64
2019$1,523.00$241.94
2018$1,281.65$160.58
2017$1,296.50$192.31
2016$1,151.70$182.31
2015$1,060.20$111.18
2014$1,199.25$164.03
2013$1,201.50$197.70
2012$1,664.00$444.22
2011$1,574.50$498.73
2010$1,410.25$573.32
2009$1,104.00$429.91
2008$865.00$302.41
2007$836.50$409.37
2006$635.70$338.24
2005$513.00$276.90
2004$438.00$215.33
2003$417.25$242.93
2002$342.75$145.12
2001$276.50$65.20
2000$272.65$40.97

Among the largest companies on the NYSE Arca Gold BUGS Index, Colorado-based Newmont has experienced a 24% drop in its share price over the past year. Similarly, Canadian Barrick Gold also saw a decline of 6.5% over the past 12 months.

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200 Years of Global Gold Production, by Country

Global gold production has grown exponentially since the 1800s, with 86% of all above-ground gold mined in the last 200 years.

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Visualizing Global Gold Production Over 200 Years

Although the practice of gold mining has been around for thousands of years, it’s estimated that roughly 86% of all above-ground gold was extracted in the last 200 years.

With modern mining techniques making large-scale production possible, global gold production has grown exponentially since the 1800s.

The above infographic uses data from Our World in Data to visualize global gold production by country from 1820 to 2022, showing how gold mining has evolved to become increasingly global over time.

A Brief History of Gold Mining

The best-known gold rush in modern history occurred in California in 1848, when James Marshall discovered gold in Sacramento Valley. As word spread, thousands of migrants flocked to California in search of gold, and by 1855, miners had extracted around $2 billion worth of gold.

The United States, Australia, and Russia were (interchangeably) the three largest gold producers until the 1890s. Then, South Africa took the helm thanks to the massive discovery in the Witwatersrand Basin, now regarded today as one of the world’s greatest ever goldfields.

South Africa’s annual gold production peaked in 1970 at 1,002 tonnes—by far the largest amount of gold produced by any country in a year.

With the price of gold rising since the 1980s, global gold production has become increasingly widespread. By 2007, China was the world’s largest gold-producing nation, and today a significant quantity of gold is being mined in over 40 countries.

The Top Gold-Producing Countries in 2022

Around 31% of the world’s gold production in 2022 came from three countries—China, Russia, and Australia, with each producing over 300 tonnes of the precious metal.

RankCountry2022E Gold Production, tonnes% of Total
#1🇨🇳 China33011%
#2🇷🇺 Russia32010%
#3🇦🇺 Australia32010%
#4🇨🇦 Canada2207%
#5🇺🇸 United States1705%
#6🇲🇽 Mexico1204%
#7🇰🇿 Kazakhstan1204%
#8🇿🇦 South Africa1104%
#9🇵🇪 Peru1003%
#10🇺🇿 Uzbekistan1003%
#11🇬🇭 Ghana903%
#12🇮🇩 Indonesia702%
-🌍 Rest of the World1,03033%
-World Total3,100100%

North American countries Canada, the U.S., and Mexico round out the top six gold producers, collectively making up 16% of the global total. The state of Nevada alone accounted for 72% of U.S. production, hosting the world’s largest gold mining complex (including six mines) owned by Nevada Gold Mines.

Meanwhile, South Africa produced 110 tonnes of gold in 2022, down by 74% relative to its output of 430 tonnes in 2000. This long-term decline is the result of mine closures, maturing assets, and industrial conflict, according to the World Gold Council.

Interestingly, two smaller gold producers on the list, Uzbekistan and Indonesia, host the second and third-largest gold mining operations in the world, respectively.

The Outlook for Global Gold Production

As of April 25, gold prices were hovering around the $2,000 per ounce mark and nearing all-time highs. For mining companies, higher gold prices can mean more profits per ounce if costs remain unaffected.

According to the World Gold Council, mined gold production is expected to increase in 2023 and could surpass the record set in 2018 (3,300 tonnes), led by the expansion of existing projects in North America. The chances of record mine output could be higher if gold prices continue to increase.

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