The price of gold has a positive correlation with money supply growth, the World Gold Council has reported.

A report produced by the council shows that a surge in the price of gold is an advance signal of higher velocity of money and, consequently, future inflation pressures.

By analysing year-on-year percentage changes in gold price and money supply in the UK, US, the Eurozone, India and Turkey, the council found money supply growth in each country was positively correlated to percentage changes in the price of gold. The analysis also revealed money supply growth tends to precede gold price increases by six to nine months.

The paper found that a change in the United States money supply had the largest individual impact on the price of gold. Changes in money supply in other countries, particularly those such as India "where gold has a preeminent cultural role" was also important.

The council said the findings suggested that investors could be justified in their concerns that quantitative easing measures will lead to an increase in the velocity of money and in turn inflation, given the correlations observed with increments in the gold price.

Gold has become a popular investment among hedge fund managers such as David Einhorn and John Paulson, who launched a dedicated gold fund in November 2009.