Cathie Wood, CEO of ARK Investment Management, has sparked widespread debate in financial markets after commenting on the recent decline in gold prices, warning that historical indicators may suggest the precious metal has reached overstretched levels.
In a post on X two days ago, Wood said that gold’s market value as a share of the US money supply (M2) has reached its highest level on record, surpassing the peak seen in 1980, a period marked by historically high inflation and interest rates.
Troubling Comparison with the Great Depression
Wood highlighted that the most alarming signal is that the gold-to-M2 ratio has climbed to levels similar to those recorded during the Great Depression in 1934, a time of profound monetary upheaval in the United States.
During that period, the US dollar lost nearly 70% of its value against gold on January 31, 1934. Private ownership of gold was banned, and the money supply (M2) collapsed, marking a decisive shift in US monetary policy.
Will History Repeat Itself?
Despite the historical parallels, Wood stressed that today’s US economy does not resemble the 1970s, when inflation surged into double digits, nor the 1930s, which were characterized by severe economic contraction and deflation—making the current environment more complex to assess.
The Dollar Remains Resilient
While foreign central banks have spent years diversifying their reserves away from the US dollar, Wood noted that the currency remains relatively strong.
She pointed out that the yield on the 10-year US Treasury bond peaked at 5% in late 2023 and has since declined to around 4.2%, reflecting the continued relative strength and appeal of dollar-denominated assets.
Are We Near the End of the Cycle?
Wood argued that parabolic rallies in asset prices often push valuations beyond investors’ expectations, but such extreme moves typically occur near the end of an economic cycle, rather than at its beginning.
Bottom Line: Where Is the Bubble?
According to Wood, the bubble today is not in artificial intelligence, but in gold. She warned that a strengthening US dollar could be the catalyst that bursts the gold bubble—similar to what occurred between 1980 and 2000, when gold prices fell by more than 60%.
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