sedek

Energy, Inflation and the U.S. Dollar

"On the other hand, there are people like Steve Forbes who contend all we need to do is shore up the dollar and oil prices will come down. As usual, Forbe's has things back-asswards. It is the rising cost of oil (due to worldwide supply/demand fundamentals) that is causing, in a vicious circle, the US dollar to decline."

If you think oil demand has risen 500% since Jan '01 or 250% since Oct '07, then you might be able to support this point, but would still have a hard time explaining why worldwide demand has had less an impact on the price of oil and gold and copper in Euros, Swiss Francs, or Canadian Dollars.

Forbes is a buffoon but is correct that the tanking Dollar has driven much of commodity hikes. We have been reminded of this again lately as the Dollar strengthened from jawboning by Fed officials, causing expectation of rate hikes to be priced in to futures, and oil and gold have to retreat.

Oil also has a supply and a speculation component to the price, but the weak Dollar accounts for over two thirds of the price increase .