America is witnessing a mammoth increase in the money supply.  According to the U.S. Federal Reserve, seasonally adjusted M2 has gone from $7.25 trillion in July of 2007 – to over $8.37 trillion today.  That’s 15.44% more money circulating around the economy in just two years, a colossal $1.12 trillion increase.

Gold declined gently throughout Far East and early European trading on Tuesday…and by shortly after lunchtime in London…had given up around four bucks. From there, a smallish rally developed that made an attempt to continue rallying on the Comex, but got cut off at the knees [at its high of the day] shortly after 9:10 a.m. Eastern time. This decline lasted until 1:15 p.m. in New York…and by the time electronic trading ended at 5:15 p.m. yesterday afternoon…gold was back to virtually unchanged from Monday’s close.

Gold traded sideways through Hong Kong and most of London then surged up to an intraday high of $953 at around 9 a.m. in New York only to completely erase the gains less than an hour later. From 10 a.m. through the Comex close gold showed a steep downward trend but reversed course and made up most of the day’s losses on the Globex, finishing at $949.00/oz., down $0.10. Overnight, gold has moved lower.

Gold held just under $950 an ounce today, Wednesday, as the dollar steadied against a basket of currencies with weakness in the euro underpinning prices, but gains were capped by lack of physical demand for the metal.

All was calm in Far East trading on Friday morning. Both metals began to slip a little starting at 3:00 p.m. on Friday afternoon in Hong Kong. This lasted through London trading as well…and by the time the Comex opened, gold was down $10 and silver had slid about 23 cents.

Gold started the summer doldrums looking strong and has retreated since, but what are its prospects for the rest of the year and beyond? That will largely be determined by the interplay between supply and demand; let’s take a look at the supply side.

With the global economy on the mend, could gold be gearing up for another record-setting run? It sure looks that way. 

Gold developed a slight upward trend late in Hong Kong and rode that trend mostly sideways through the end of the day to a marginal gain. The yellow metal closed at $925.30/oz., up $4.50. Overnight, gold is up sharply. 

From the close of trading in New York on Wednesday afternoon at 5:15 Eastern Time…and the close of trading 24 hours later on Thursday at the same time…the U.S. dollar lost about 90 basis points. That’s a big drop. Gold’s response? Up three bucks…and silver was actually down on the day.

The high in gold on Wednesday turned out to be the Tuesday closing price of $924.10…as gold was under pressure right from the open in early Thursday morning trading in the Far East…as the New York bullion banks get about an hour head start before Sydney opens for business. This happened because the N.Y. bullion banks close for business at the end of one trading day…and open for business 45 minutes later for early morning trading in the Far East in the next calendar day. That 45 minute gap is the only time during the day that gold is not traded anywhere in the world. Note that on the Kitco gold chart below.