Michael Fitzsimmons

High Gold Prices: It's the Oil, Stupid

Mahavishnu: well, president johnson eventually felt so horrible about the JFK ordeal...he eventually championed civil rights for black people and then couldn't bare to run again and dropped out of the election. his civil rights acts had the side effect of turning the "solid south" from democrats to republicans...the so called "conservative christian right". as we know after 8 years of bush, there is nothing "conservative" about them (including the deficits and idiotic foreign policy) and they are in fact radical....further..there is nothing "christian" about them either, but boy do they know how to use religion to accomplish their goals.

MarkDivy: i would challenge you right back: how much oil does the US defense dept use everyday? you'll be amazed how much that one dept of the US gov ranks on the list of top world consumers of oil. 2nd, what do you think the geopolitical risk premium due to US led oil wars is putting on the price of a barrel of oil? 3rd, what do you think the US defense dept bill is to secure, protect, and acquire US oil would be if the US gov actually did a thorough accounting of the cost? i'll somewhat answer that question by saying if the true cost were passed on to consumers, we'd being paying a helluva lot more for gasoline at the pump. the issue is similar to coal, if the true cost of health care and pollution due to using coal were passed on to the consumer, our electric bill would be MUCH higher. all this subsidation by the US government of oil and coal is at the detriment of natural gas: the real, cleanest, cheapest, most abundant fuel of all. it is absolutely insane energy, environmental, and foreign policy.

WayneS: well, we cannot get off foreign oil by using fuels that rely on it - this includes diesel and biofuels that require mixing with gasoline. wrt natural gas, there are simply NO studies proving that it is any more dangerous a transportation fuel than is gasoline. there are many countries (brazil, italy, pakistan) not to mention enlighted US states like Utah and Oklahoma that are succesfully using CNG in cars and trucks and it is SAFE (not to mention half the price of gasoline/diesel and much more environmentally friendly). please, don't fall victim to the scare tactics of big oil and coal.

boxed merlot: not sure i am following you...but plz realize i recommend both oil and gold as investments.

High Gold Prices: It's the Oil, Stupid

Mahavishnu: well, president johnson eventually felt so horrible about the JFK ordeal...he eventually championed civil rights for black people and then couldn't bare to run again and dropped out of the election. his civil rights acts had the side effect of turning the "solid south" from democrats to republicans...the so called "conservative christian right". as we know after 8 years of bush, there is nothing "conservative" about them (including the deficits and idiotic foreign policy) and they are in fact radical....further..there is nothing "christian" about them either, but boy do they know how to use religion to accomplish their goals.

MarkDivy: i would challenge you right back: how much oil does the US defense dept use everyday? you'll be amazed how much that one dept of the US gov ranks on the list of top world consumers of oil. 2nd, what do you think the geopolitical risk premium due to US led oil wars is putting on the price of a barrel of oil? 3rd, what do you think the US defense dept bill is to secure, protect, and acquire US oil would be if the US gov actually did a thorough accounting of the cost? i'll somewhat answer that question by saying if the true cost were passed on to consumers, we'd being paying a helluva lot more for gasoline at the pump. the issue is similar to coal, if the true cost of health care and pollution due to using coal were passed on to the consumer, our electric bill would be MUCH higher. all this subsidation by the US government of oil and coal is at the detriment of natural gas: the real, cleanest, cheapest, most abundant fuel of all. it is absolutely insane energy, environmental, and foreign policy.

WayneS: well, we cannot get off foreign oil by using fuels that rely on it - this includes diesel and biofuels that require mixing with gasoline. wrt natural gas, there are simply NO studies proving that it is any more dangerous a transportation fuel than is gasoline. there are many countries (brazil, italy, pakistan) not to mention enlighted US states like Utah and Oklahoma that are succesfully using CNG in cars and trucks and it is SAFE (not to mention half the price of gasoline/diesel and much more environmentally friendly). please, don't fall victim to the scare tactics of big oil and coal.

boxed merlot: not sure i am following you...but plz realize i recommend both oil and gold as investments.

High Gold Prices: It's the Oil, Stupid

WilliamDav: if the last 10 years has shown me anything, it's that the rule of law in the US is on very shaky ground. we had an unconstitutional and unwise war. we had the "patriot act". if the rule of law meant anything, bush would have been impeached in his first term. if we had the rule of law, we'd see many many people behind bars for financial fraud. yet, the big 3 ratings agencies are still rating aren't they? the Fed is still stealing money from middle class taxpayers. it's like the argument everyone makes that the geopolitical risks in other countries is so great, while at the ignoring the huge risks of living and breathing in the USA. but i digress, yes, i have some paper assets as well - mostly all oil since i am a firm believer (obviously) that oil is the most precious commodity of all (and the new world reserve currency!) and that worldwide oil production will not keep pace with worldwide demand given a "functioning" world economy (and the world economy is too built upon oil). but, i like my gold, and no its not under my mattress but buried down by a creek near an old tree where a raccoon protects it ;)

EconomicPh: and i maintain that the world runs on oil, not gold, and therefere gold is simply a reflection of the world's economic problems as oil causes distortions, ala the early 80's and now, both of which gold skyrocketed **after** oil. oil leads, gold follows. it's really very simple if you don't over analyze.

Davewmart: i have already written an article on natural gas reserves, please find and read. shale gas has changed the entire energy outlook. over the last decade, in spite of the fact that big oil was exploring for OIL, more natural GAS was found than oil (!). it's everywhere, it's abundant. XOM, the most conservative oil company on the planet, is ready to build a very expensive pipeline to bring alaskan nat gas to the lower48. why? because the nat gas is *abundant* cheap and clean. please read robert hefner's book "The GET" (i did a book review on this) and then get back to me. thx.

GL Turner: gov sachs is right! anyhow, you hit the nail on the head: natural gas is so abundant, and so cheap, and the pipeline distribution system in the US so mature and extensive, that the thought of americans filling up at home with nat gas at $1.50 GGE would be real FREEDOM, because the gov or big oil cannot control the price! the top 5 nat gas producers account for less than 10% of US nat gas production. that is, it is dominated by small independent producers with royalties being paid to thousands of farmers and landowners. again, this is why nat gas transortation is a symbol of american freedom and democracy...and that is what scares the government...REAL freedom.

ripski: yup, agree nukes are needed. that said, i am skeptical of a model of transportation built on fully electric cars with huge battery packs, which will be expensive and use huge amounts of resources to make and service. i like nat gas and hydrogen as transportation fuel. as hefner so brilliantly puts it, we need to move beyond dirty and expensive solid and liquid fuels of the 20th century (which i think include batteries..) and onto the cheap and clean gaseous fuels of the 21st century (natural gas, hydrogen, wind, and solar). obviously i think the priority in the short term (next couple decades) should be on natural gas as a bridge to hydrogen and while we're building out solar and wind.

tempo dulu: you're certainly entitled to your opinion, even if it's wrong. the "mathematical basis" you seek is the chart, that shows how gold prices pop **after** oil prices pop. that is called cause and effect, and that is what the article is about. the world economy depends on oil, not gold. that is why gold *follows* oil.

tructor: but they are still printing money and spending it...so why not spend it on nat gas transportation? to me, it's a question of acknowledging the problem and funneling the money toward it. but yeah, i got your point, and agree.

auto44: the coal lobby is responsible for alot of very bad policy. however, the coal lobby is not responsible for the current rise in gold prices, that's following the oil price. that said, i agree the electrical transmission grid needs updating!

High Gold Prices: It's the Oil, Stupid

whippet: however, both gold and oil are priced in US dollars and the US must have oil for its economy to function. therefore, not only is the fed printing money to give away to its buddies, but also to pay for all the imported oil we need day after day, week after week, month after month. so it is OIL driving GOLD, not the other way around. the american people and economy could function fine without gold, but try driving to work on the strength of your gold earrings. oil is THE most precious commodity on Earth. instead of acknowledging that, and doing something about it, american policymakers ignore it or fight oil wars to obtain it. therefore, gold is going much much higher in US dollar terms because the nation is no closer to reducing foreign oil imports post $145/barrel as it was when oil was $30/barrel. we live in an ignorant country.

High Gold Prices: It's the Oil, Stupid

buddhabill: well said!

High Gold Prices: It's the Oil, Stupid

wow! some excellent posts this time! it reminds me of my early days on SA! people are thinking again - wonderful give and take! my turn:

ToddPeterson: suppose your AK47 gets you through a currency collapse and you manage to survive on the other side of it. how will you secure your net worth going forward? i maintain in such a scenario gold, silver, and precious metals have historically been the way, and will continue to be the way.

Davewmart: well, i suppose we just disagree: natural gas reserves in the lower48 and alaska ARE for real. so is the natural gas in qatar, australia, brazil, and around the world. wrt making ammonia from natural gas, the question is why bother? since natural gas can power transportation and electrical generation cleanly and cheaply, and since the US has abundant supply, all we need do is simply USE IT.

MelShapiro: awesome post! and you're right, in order to get the "new world order" that bush#1 spoke of and the "one world currency" that the world is clamoring for (and you can bet skull and bones is in on all that...), they first must destroy the american system and the american democracy and the american spirit. that is what bush#2 started and what obama is continuing. that is why i point to an NGV in the home garage being refueled there by a nat gas refueling appliance like the "phill" as a badge of American freedom and democracy. but see, that is exactly what the US gov does NOT want us to have: freedom of mobility and the ability to refuel at home with domestic natural gas. because if we had freedom to be mobile, and freedom from oil prices, the middle class would be STRONG, and they want us weak. anyhow, great post and thanks.

Tructor: how will they be paid for? just think how many cars and trucks could have been converted to NGVs for the cash for clunkers. just think of how many CNG refueling stations and home garage refueling appliances (the "phill") could have been bought for the bonus money the Fed gave to rich executives at AIG, BofA, ML, GS, etc. etc. etc. we could have had an entire natural gas infrastructure for the money the US has spent in Iraq with money left over. the money is there, the key is to force congress, our numbnut presidents, and our ridiculous federal reserve, energy, and treasury departments to acknowledge the foreign oil problem and adopt the solution to this crippling ailment: natural gas transportation.

longoil: thanks, i'll read the article when i have more time and research this issue further.

gravity404: i climb lots of mountains, and if you call being a patriotic american and trying to save the country and democracy by facing our problems head on "beating my head against the wall", then guilty as charged.

waf76: thanks for the compliments and for pointing out PBR's fuel station strategy in brazil - if only exxon, cvx, and cop in the US provided the same. however, i disagree that the US can wean itself off of foreign oil: we could cut 6-7 million barrels of oil a DAY out by simply converting half the cars and trucks over to run on CNG. as far as israel is concerned, i have written before how the "special relationship" will bring both countries down and almost assure the destruction of israel. it's a strategically flawed relationship in a number of ways. that said, have you ever taken a look at how many jewish people are in charge of US policy and also involved in the biggest financial frauds? greenspan, bernanke, shapiro, gensler, madoff, milken, lebowitz, it just goes on and on. i used to not understand why arab leaders called the US a "zionist regime", but now i understand. now, before all the anti-semitic comments come, this is just an obvious observation: that is, a group that makes up such a small percentage of americans have an overwhelming influence on policy and at the same time have oversight responsibilities over others who have close relationships. it's a very unhealthy situation and they are certainly doing a lousy job of making america strong...but, i must say, they are certainly good at enriching themselves...

davewmart: the natural gas is there (here) and everywhere. most all experts are now in agreement on that. the reason i want to shut down all the coal plants is not just CO2, it's the real problem with coal: the toxic heavy metal residue left over after burning coal and the fact that this crap and its particulates are in every lake, river, and creek in the US and now showing up in the water tables all over the country. we've destroyed the fresh water fish, and we are well on our way to destroying our fresh water supplies. it's idiotic to keep doing this when science and evidence is screaming not to. natural gas has 50% less CO2 than does coal, and 100% less toxic particulates (that is, there is no "fly-ash") left over from burning nat gas.

slamstocks: thanks. every time i hear "brilliant" i think of that guinness commercial that says "some guy had the idea to put six of these bottles together. brilliant!"

williamdav: but if there is a true currency crisis, will the paper assets you mention make it through to the other side? i wonder myself. that said, yeah, i own oil stocks - it's really the only thing left after gold and silverand precious metals (imho). oh, and yeah, some international stuff - nothing else here.

jimbo: thanks. both parties are failing america, and failing badly, and the two parties are interconnected at the navel. i believe they are intentionally weakening the US to bring about bush#1's "new world order" and a one world currency. the key to preventing this is by preserving our mobility using our abundant cheap and clean domestic fuel: natural gas. once we are dependent on oil rationing, the grand US "capitalistic democracy" experiment will be over. btw, biofuels in the US is a failed proposition: all they do is blow out food and water resources with terrible dislocations across those sectors. in the end, biofuels in the US are just an excuse to keep addicted to dirty and expensive 20th century liquid fuels instead of clean and cheap 21st century gaseous fuels.

EconomicPh: your theory is completely backwards because oil is the one strategically necessary commodity, not gold. the world economy must have oil to function, not gold. therefore it is OIL that is driving GOLD prices, not the reverse as you say. oil is burned when it is consumed, all gold ever produced is still around - that is yet another reason your theory is flawed and illogical.

kertch: i disagree with you. i think US/Israeli policy is disastrous for both countries and will lead to both countries paying a huge price for such ridiculous policies.

kertch (reply to todd): i agree with you on this post. all one has to do is look at what happened to britain when they lost being the world's reserve currency of choice and devalued. manufacturing fled as quickly as possible (as it now is in the US). that was a good post.

davewmart: yes, i like to use this analogy: let's say the US did not have a nuclear bomb and some other country "X" did. next, we find "X" invaded canada and mexico under false pretenses to steal their oil. now, what would the US do? we'd be fools not to develop a nuclear deterrent - just as iran is doing. it's all really very simple and it's all about oil.

rokjok777: oh, i give jimmy carter lots of credit (and not because he too went to georgia tech). he initiated *real* energy policy and the first meaty mpg fuel standards. and, as i said in a follow up post, despite every president since eisenhower's rhetoric, carter was the only one to reduce foreign oil imports, and that by 50%. but, the reason your post was so great was the very last sentence which i will repeat here:

"Rethink Perpetual War and rethink Big Oil and we'd have plenty of money for all of our other problems."

that said, we must remember that big oil is also big natural gas, and natural gas is the key to solving the foreign oil import problem.

High Gold Prices: It's the Oil, Stupid

User514292: ha ha ha! that post was hilarious!

High Gold Prices: It's the Oil, Stupid

fatpitch2: i did not know about this so thanks for the post. however, i am not sure why we'd need ammonia when we have abundant, clean, and cheap natural gas. if we built out a natural gas infrastructure correctly, we'd make many of the new pieces of that puzzle be compatible with a future hydrogen energy infrastructure which long term is the best solution. i haven't read simmons' work on this issue, but if you can point me to an article, i'd be interested to read it. thanks.

WayneS: but diesel comes from foreign oil, and it is foreign oil that is bankrupting the country. although i agree that diesel engines are more efficient, i disagree that diesel is the solution because it is not a *domestic* source of energy and therefore will not help the US unshackle the chains of foreign oil, deficit spending, a weaker currency, and a failed foreign policy based on fighting oil wars we cannot afford.

High Gold Prices: It's the Oil, Stupid

thanks for all the comments. i'll jump in here and add my 2 cents worth (which is worth alot less than it used to be):

longoil: you know, i always wonder about conterfeit precious metals. it wouldn't be hard to do, the profit motive is certainly there, and it's quite difficult for a small investor to check. i was going to check some coins by trying to measure electrical resistance, which is very easy to calculate. but this doesn't work very well because with an ohm meter all you really measure is surface resistance. so, a counterfeit bar as you described, would pass that check. my only solace is that i will be selling the coins back to the same outfit i bought them from, or, bartering them for goods & services so it's up to the other guy to check them. suggestions?

EconomicPh: oil is higher because of gold? that's ridiculous. you say that oil will be $133 when gold goes to $2000, so i have just one question for you: what was the price of gold when oil was $145 last year? further, how do you explain the chart in the article and the price of gold in the early 80's? your logic appears to be severely flawed. you must be one of the "economic experts" i spoke about in the article.

lucky lenny: apparently you cannot read as the article blamed both republicans and democrats (i.e. bush AND obama). funny you mentioned jimmy carter: he is the only president in US history to reduce foreign oil imports and did so by 50%. no other president has even reduced them one barrel. great president to mention in context of this article, as after carter reduced foreign oil imports, gold fell like a rock. see the chart in the article.

jrainspe: we need ron paul's legislation (which is picking up cosponsor very quickly) to force the fascist and secret Fed to reveal just how it is spending mine (and yours) tax-payer money by giving it to the millionaire and billionaire executives at the biggest insurance, banking, financial service, and mortgage firms that made money twice: once by the financial fraud that drove them to bankruptcy, and secondly by receiving the bonus bailout money paid for by you and me and given by the Fed to their best buddies. if you don't see the problem here, i can understand why you finished in the lower 50% of your class. your logic in stating that most doctors, lawyers, and engineers were along with you in that bottom 50% is also severely flawed.

Davewmart: where in the world did you read in this article that gas supplies can be expanded indefinitely? what i have said in the past (but not in this article) is that the US has enough natural gas to power:
- home heating
- industrial
- replacing ALL coal plants with nat gas generation
- power half the cars and trucks in the US
for at least 60 years, and more likely closer to 100 years. the world is similarly blessed with abundant, clean, and cheap natural gas. i guess some people do live on the moon. wrt iran, i explained US forces on two borders forced iran to develop nuclear capability, so you are preaching to the choir.

LoveShorting: thanks - i needed some support on this one! by the comments left so far, i wonder if anyone is even reading the article ;) anyhow, yeah, chu is pathetic! he should resign immediately or obama should fire him. for those two to be agnostic about the largest, cleanest, and cheapest domestic fuel the US has, and the only fuel capable of being scaled up to reduce foreign oil imports, well, it's criminal.

WilliamDave: well, interesting notes. so i am interested - what are you doing to protect your net worth in these times? i have a garden and wish i could have some chickens, goats, and cows but unfortunately i live in a neighborhood that doesn't allow such. i'd also like a big pond stocked with fish. those will be the things of value when the US eventually goes through a huge currency change. and that is coming as long as we stay addicted to foreign oil (just like in brazil).

Don't Believe Long-Term Oil Forecasts

oops, i forgot to add the biggest reason why i would agree with you, and why many others must agree with you: a $77/barrel oil price today even as:

1) demand in the US has fallen 6-7%
2) brimming worldwide oil supplies
3) the worst economic contraction since the great depression

so, if prices are $77/barrel now, where are they going if the worldwide economy picks up over the next year? where will the go if the US dollar continues downward? and lastly, where will they go if the US decides to start the 3rd war in the middle east (iran)? the outlook for oil has never been more bullish than it is today.

Don't Believe Long-Term Oil Forecasts

i tend to agree with you and site several reasons why:

1) even at oil prices of $145/barrel, production of the largest oil companies was down year-over-year

2) the US continues to spend huge sums of money to obtain oil: witness the war in iraq and afghanistan (which is not about the taliban, but about getting caspian sea energy treasures to market without going through russia or iran).

3) the chinese are now selling more cars (the vast majority of them gasoline powered) every month than america.

4) the U.S. has still not adopted a non-gasoline personal transportation solution (like natural gas vehicles) and therefore is still addicted to foreign oil despite all the rhetoric from the obama administration. it is clear obama and energy secretary chu are held firmly in the grasp of oil and coal power as they are "agnostic" about natural gas transportation even as supply has mushroomed and prices have dropped.

so, the U.S., and the world for that matter, continue on a collision course with the reality of worldwide oil supply/demand. if the economy does come back from the last prices spike (not a given), the current "glut" of oil supplies will be worked off in a matter of months and the next price spike will exceed the last one. the world is on an economic yo-yo driven by the new world reserve currency: oil. the U.S. is the biggest user by far (~25% of total), oil is priced in US dollars, but the U.S. is in deep debt and after 8 years of Bush China owns *alot* of it. so, you tell me, who is in the catbird seat going forward?

BP Income Statement Analysis for September 2009 Quarter

is not to like about BP? in an era of when worldwide oil supply won't keep up with worldwide oil demand, and with a currency on the fritz, American investors should own stocks like BP and StatOil (STO).

BP Income Statement Analysis for September 2009 Quarter

Great dividend, significant production increases, what

A Crude 10 Year Perspective: The DJIA, Oil and Gold

anarchist: i believe gold collapsed in the late 70's due to neither of the reasons you mentioned. gold collapsed because oil prices collapsed due to alaskan and north sea oil coming online. if we fast forward today, there is no "holy grail" oil finds to save us now - they are all deep and very expensive to produce and will still not keep up with mature oil field depletion rates. so, that is why i am so bullish on gold. add in american deficits (as an indirect result of the foreign oil led trade deficit) and the fact that gold is priced in US dollars, and we've got a 1-2 punch that will take gold to dizzying heights (along with oil).

OldWizard: nobody in the previous 8 year administration wanted a strong dollar either....but, well written comment!

bob adamson: i disagree that devaluing the US dollar is a good policy. plz read this article if you have not already.
online.wsj.com/article...
with which i agree 100%. devaluing the currency instead of addressing the real problem (foreign oil imports) is simply a road to disaster and a fiat currency final swan dive that will make previous economic collapses appear as child's play. this collapse will be experienced by the world's most powerful high-tech military. i doubt it will be pretty. but all this currency talk is besides the point: job #1 must be to solve the foreign oil import crisis that will bankrupt us
**** no matter what the value of the dollar is ****.

A Crude 10 Year Perspective: The DJIA, Oil and Gold

chap08: i've been thinking about your comment on china devaluing their currency. the big difference between china's devaluation and the U.S.'s is that china is devaluing its currency merely because they have pegged it to the U.S. dollar (to keep its export market strong). the U.S. is devaluing its currency by printing gobs of more paper dollars. this is a critical difference in my opinion. in addition, china has huge mounds of foreign reserves. this is another difference. so, i don't believe china should be used to support your thesis that currency devaluation is a means to a successful future.

jarco: there was a link to the energy policy in the article which you apparently did not follow. here it is again:

thefitzman.blogspot.co...

once you read it, if you disagree of have better ideas, i am all ears.

anarchist: i certainly wouldn't put my entire portfolio into gold (but some are), however, follow the link in this article to einhorn's speech recently:
blogs.wsj.com/marketbe...

advill: i agree the solution is simple: natural gas transportation. i don't agree that it is a simple matter to convince the U.S. government, media, and citizenship to make the change. i also think not doing so will have (and already have had) serious negative impacts on our civilization.

Edvishnu: well, i hope you are not comparing my observations with "the sun is the center of the universe" :) perhaps our solar system, but not the universe...