Gold Bubble Warning? Cathie Wood Says Historic Money Supply Signal Flashing Red

Ark Invest CEO Cathie Wood is warning that gold may be nearing the end of an extended valuation cycle, pointing to historical extremes in the relationship between gold’s total market value and the money supply as a potential signal of overheating conditions.

In a thread posted on X, Wood argued that the market capitalization of gold relative to the United States money supply has reached levels not seen in some of the most extreme periods in modern financial history. 

According to Wood, the ratio of gold’s market cap to U.S. M2 money supply recently hit an intraday all-time high, surpassing peaks recorded during both the 1980 inflation crisis and the Great Depression era of the 1930s.

The metric, which compares the total value of above-ground gold to the total amount of money circulating in the economy, is often used by macro investors to gauge whether the precious metal is historically overvalued or undervalued relative to monetary conditions. 

Wood suggested that the current reading signals gold could be entering a late-stage cycle phase rather than the early stages of a sustained bull run.

Historical Extremes Provide Context

Wood drew parallels to two pivotal historical moments. 

In 1980, the precious metal surged as inflation and interest rates climbed into the mid-teen range, driven by macroeconomic instability and aggressive monetary tightening. 

That period marked a major cyclical peak for gold prices, which then entered a multi-decade decline.

She also referenced 1934, during the depths of the Great Depression, when the gold-to-money supply ratio last reached comparable levels. 

At that time, the U.S. government devalued the dollar against gold by nearly 70%, banned private ownership of gold, and presided over a sharp contraction in the money supply. The comparison shows how unusual current valuation levels appear when viewed through a long-term historical lens.

Wood emphasized that today’s macroeconomic backdrop differs significantly from both eras. Inflation is not running at double-digit levels, and the economy is not experiencing the severe monetary contraction seen during the 1930s. 

While foreign central banks have gradually diversified reserves away from the dollar in recent years, broader financial conditions remain relatively stable by historical standards.

Interest Rates And Currency Dynamics In Focus

Another key factor highlighted in Wood’s analysis is the trajectory of bond yields. 

She noted that the 10-year Treasury yield peaked around 5% in late 2023 and has since declined to roughly 4.2%. Lower yields typically support gold prices by reducing the opportunity cost of holding non-yielding assets. However, Wood suggested that if the dollar strengthens or yields stabilize, the precious metal could face downward pressure.

Wood argued that parabolic price moves often occur near the end of asset cycles rather than the beginning. While she acknowledged that asset bubbles can overshoot rational valuation metrics, she suggested that extreme spikes often precede prolonged corrections.

In her view, the current bubble risk is not centered on artificial intelligence — a sector that has drawn significant investor attention — but instead may be forming in gold. 

She suggested that a strengthening dollar could act as a catalyst for a gold price reversal, referencing the period from 1980 to 2000 when prices declined by more than 60% following a major cyclical peak.

Macro Narrative Shifts Underway

The comments come at a time when global investors are reassessing traditional safe-haven allocations. 

Gold has benefited in recent years from geopolitical tensions, central bank buying, and concerns around long-term currency debasement. 

Daily chart for gold (Source: TradingView)

However, Wood’s analysis suggests that valuation metrics tied to money supply could signal diminishing upside potential if macro conditions stabilize.

Her warning does not necessarily imply an imminent price collapse, but it does suggest that the risk-reward balance for the precious metal may be shifting if monetary expansion slows and the dollar regains relative strength.