Is Black Gold Worth More than Real Gold? 23 comments
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by Mike Conlon
Let’s face it: gold is very pretty. It makes for great eye-candy when dangling from some starlet’s neck, usually holding some other equally beautiful gem or precious stone. But what’s it really worth? 
Well that’s pretty easy, just take a look at the current quote for gold or a gold chart, recently trading around $909/oz. But what does that really mean? Well I’m not going to rehash the basic laws of supply and demand, but:
An asset it only worth what someone is willing to pay for it!
There are many other uses for gold besides just making pretty jewelry. There are many industrial and engineering uses for gold as it is very malleable, it’s resistant to corrosion, and it conducts electricity. So what? What does that mean to me? Absolutely nothing! Why? Because I have choices. I can choose not to buy it and it doesn’t affect my life one way or the other.
But oil? Now that’s a different story. Now I realize that here in the US we’re making a push toward renewable energy and trying to wean ourselves off of foreign oil, but right now we are still years away and it is also cost-prohibitive. Back when oil was $147/barrel and gasoline cost $4.00/gallon, I chose to amend the way that I consumed oil, namely by driving less, and turning down my heat in the winter. But this is something that affects my life directly.
So why all the love for gold?
Well, throughout history gold has been symbolic of wealth and power and in modern times has been known as a hedge against inflation. When Nixon took the US off of the gold standard in 1971, he was merely decoupling one symbol for another! (gold vs. paper) And in 1971, what was the biggest source of wealth and power? That would be the United States. (Whether or not this was true at the time is up for debate, but it seemed to work.)
Fast forward to present day. The US doesn’t seem as wealthy and powerful in comparison to other nations and the disparity between that wealth and power gap has narrowed considerably since 1971.
As a result, much has been made recently about the consternation regarding the use of the US dollar as the world’s reserve currency, and nations such as China and Russia have recently been calling for changes.
Which brings me back to gold and oil. It appears now that our economy has “stabilized” for the time being and that we might be in the early stages of recovery, yet it seems like deflation is rearing its ugly head. It looks like BOTH gold and oil has been selling off recently. Is this a minor blip or a trend reversal?
Unfortunately, the fall in the price of oil means that demand may be falling which could be indicative of the world economy not recovering quickly enough. This is actually good news for the US dollar as it will gain strength from the “flight to safety” trade, but deflation will bring down both gold and oil.
As far as the intrinsic value of gold is concerned, to me it’s worth as much as a piece of paper with a president’s picture on it. And it’s not as easy to carry. Give me oil any day of the week.
All of the gold bugs who are hording gold coins in safety deposit boxes are living a fantasy. If they were sane or smart, they’d starting hording oil. At least they’ll be able to heat their homes and cook warm food, rather than just sitting around with their gold hoping to look pretty enough to be asked out on a dinner date! Because once everyone figures out that gold holds no more value than a piece of paper, it too will lose value.
Now if I can just find away to carry around some oil.
Disclosure: No positions
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This article has 23 comments:
> jack
in office at this time. How can we have economic growth
with this man in office?
Wood to Coal, Coal to Oil. We have never in the history of the world had a Gold conversion. You are betting against the entire history of the planet if you say gold has no value. Someday Oil will be replaced by something else. I have no idea when or by what but it will happen.
gold will be replaced by ?
On Jul 12 02:54 PM Northstar10000 wrote:
> We only had 2 energy conversions in the history of the world.
> Wood to Coal, Coal to Oil. We have never in the history of the world
> had a Gold conversion. You are betting against the entire history
> of the planet if you say gold has no value. Someday Oil will be replaced
> by something else. I have no idea when or by what but it will happen.
>
> gold will be replaced by ?
Oil is really just another form of money. By any definition, oil represents wealth. The problem of course is that it cannot easily be traded for say, a pound of carrots or a loaf of bread. But there is no question that who holds oil, holds real wealth.
Gold is money too. It is transportable and easily traded. Like oil it is accepted everywhere. In the case of oil though, there is a real and sustained demand. It is essential to the proper functioning of our daily lives, our economy.
We often hear the argument that Gold has been widely accepted around the world for thousands of years. Both as a means to hold value and act as a store of wealth, it has proven immutable for centuries and it's unique value was recognized even in the time of Egypt and the Pharaohs.
But of course oil has not factored into human consciousness in all that time. Oil has only become important and been used extensively in modern times and so no real comparison can be made between the two except to show that gold has a longer history of acceptance.
We live in the modern world though. Out on the farm, I am much better off with tanks of fuel than I am with an "equal dollar" store of gold. Fuel is all the insurance I need when trouble hits the fan. Everywhere and always there are ready buyers for a few liters or a tankful of my stores. Because it is money I can easily trade and barter with it till the cows come home.
But not everyone can keep the commodity on-hand. In other words, the thing that gold might buy cannot easily be stored in an urban environment.
So holding gold as wealth is the natural alternative to holding the more valuable product (energy) that you will actually need to survive. I don't know of any city people who can in practice keep 10 or 20 thousands liters of stored energy on hand in they're own backyard. At least not without breaking a whole lot of laws.
Oil to Hydroelectric power
Hydroelectrics to Nuclear power plants,
Nuclear power to Solar, Wind and Fuel cells
Etc Etc Etc (There is some hope. Oil still rules the day though)
On Jul 12 02:54 PM Northstar10000 wrote:
> We only had 2 energy conversions in the history of the world.
> Wood to Coal, Coal to Oil. We have never in the history of the world
> had a Gold conversion. You are betting against the entire history
> of the planet if you say gold has no value. Someday Oil will be replaced
> by something else. I have no idea when or by what but it will happen.
>
> gold will be replaced by ?
The main difference between gold and oil is that oil is a depleting asset, while gold is not being used, gold is being accumulated. While the total amount of oil in the ground is decreasing every day, the above ground accumulated gold is increasing every day (more than 160,000 tons of gold are presently above ground). If no replacement for oil is found, this means that oil will outperform gold during the next 50 years.
If oil starts getting scarce, food will become scarce as well. For that reason, the recommendation is, start accumulating food. Storing large amounts of food on your property is not as dangerous as storing large amounts of oil in your backyard.
Like food, oil can not be stored indefinitely. It will eventually evaporate and change its chemical composition.
On Jul 12 09:00 AM DONE_SONZ wrote:
> Another preschooler's interpretation of gold.
Yes, I often walk around with pockets full of oil.
One of my uncles built his own inground gas tank and pump.
That's a way to store oil.
It's hard to move when you are changing residences.