In today’s fast-moving economic environment, investors often wonder why gold prices keep rising — especially when markets are volatile, interest rates fluctuate, or currencies weaken. While headlines may point to geopolitical tensions, central bank decisions, or currency devaluation, the real, underlying driver of long-term gold price appreciation is the relentless increase in money supply — primarily through government spending and central bank money printing.
The Link Between Money Supply and Gold Prices
Gold is unique. Unlike paper currencies, it cannot be created out of thin air. Central banks can expand the money supply with a keystroke, but gold must be mined, refined, and stored — a costly and time-consuming process. This makes gold a finite, tangible asset that historically holds its value, especially during times when currency loses purchasing power.
Over the last few decades, especially since the 2008 Global Financial Crisis and more recently during the COVID-19 pandemic, governments around the world — particularly the United States — have engaged in massive fiscal stimulus programs. To fund these initiatives, central banks have expanded their balance sheets, flooding economies with cheap money.
This expansion of the money supply has a direct effect: inflation. And when inflation rises, so does the value of gold.
Government Spending and Inflation: A Vicious Cycle
Government spending on infrastructure, defence, welfare, and bailouts injects liquidity into the system. While some of this spending is productive, excessive or poorly managed spending fuels inflation. When governments run deficits year after year, central banks often step in to buy government bonds, effectively “printing” money to cover the gap.
This causes monetary dilution — meaning the value of each dollar or Australian dollar is worth less than it was before. Savers lose purchasing power, and investors start seeking assets that can’t be debased. Gold becomes the obvious choice.
Gold: The Ultimate Hedge Against Inflation
As inflation rises, real interest rates often fall. This makes holding cash or bonds less attractive. Gold, by contrast, becomes more appealing as a store of value that resists devaluation. Over the long term, it retains its purchasing power better than any fiat currency.
Historically, every major period of monetary expansion has been accompanied by a bull run in gold:
In the 1970s, after the US left the gold standard and inflation surged, gold rose over 1,000%.
After 2008, in response to quantitative easing, gold climbed from under $900 to over $1,900 by 2011.
Since the onset of the pandemic in 2020, and in the face of multi-trillion-dollar stimulus packages, gold has once again surged past AUD $3,000 and beyond.
As of today, the gold price in Australia is trading around AUD $5,131 per ounce, a reflection of global currency debasement and continued inflationary pressures.
What This Means for Investors
The more governments spend and central banks print, the more pressure builds beneath the surface. While some assets may offer short-term returns, gold offers something more important: protection.
Investors looking to safeguard their wealth should consider increasing their exposure to physical gold — not just for potential upside, but for preservation of purchasing power in an age where fiat currency is increasingly at risk of devaluation.
FirstGold offers secure vaulting and direct access to physical gold — your hedge against inflation, money printing, and economic uncertainty.
Now more than ever, understanding what drives gold’s value isn’t just financial literacy — it’s financial survival.
