Robert Sczech

Is Black Gold Worth More than Real Gold?

If you value oil, you should hold gold. The hidden assumption behind the thesis of Mike Conion is that we will always be able to buy oil with Dollars. That is an assumption which may be proven wrong one day. Gold on the other hand, is always accepted as payment for oil (Alan Greenspan).

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.

Net Exports of Major Oil Exporters Likely to Fall

Let's assume for the moment that we are not at peak oil yet and that the high oil prices are due excessive financial speculation in oil futures.

Let's assume further that peak oil will happen one day - that is a very reasonable assumption given that the earth can hold only a finite amount of oil.

Then we should be very grateful to the financial speculators since by artificially pushing prices up, they force us to lower our consumption of oil and in this way, direct our efforts to alternative forms of energy. In this way, when the true peak oil arrives (in 2030 by the most optimistic predictions), then we will be well prepared so that the transition to other forms of energy will be easy and relatively painless.

To sum, it would be foolish to prohibit speculation in energy futures. These speculators are in fact beneficial to our long term interest.

The Gold-Oil Ratio Approaches All-time Lows

Engineer: Storing energy in a car battery means that one can recover a high percentage (80% to 90%) of that energy stored in the battery. Gold is not a store of energy since the energy expended in producing that gold can not be easily recovered. It takes energy to grind a stone into sand. Once the sand is produced, there is no easy way to recover the energy dissipated.

Having said that, I agree with you that gold is a highly desirable metal. The main usage of gold is jewelery (wedding rings). In other words, we need gold in order to attract a woman. We need oil in order to give more than 6 thousand million humans the privilege to participate in the unfolding drama on this beautiful planet located in a tiny spot of the universe. Without oil, the human population would be much smaller.

The Gold-Oil Ratio Approaches All-time Lows

User 163397: gold is fairly priced if not expensive, but oil is still cheap.

The Gold-Oil Ratio Approaches All-time Lows

Industrial civilization can thrive without gold, but it can not survive without oil. Already a stagnating oil production can cause significant problems as we experience now. While gold is being mined for hoarding (all the gold ever mined is still around), oil is being burned within a few weeks after being produced. Worse still, once burned, oil can not be recovered, that is, oil is a nonrenewable resource.

I think the declining gold/oil ratio is just a reflection of a global revaluation process. Energy used to be extremely cheap, in the future all energy will be very expensive. My bet is that the gold/oil ratio will decline further towards a long term equilibrium value somewhere between 1 and 3.

Market Power, Asset Allocation and Oil Price

The production of crude oil in the US is declining since 1970. We produce today roughly 50% of the amount of oil we produced in 1970. That decline of production happened despite lots of drilling and the usage of the most sophisticated pumping technology in the world. It has little to do with politics but a lot with the geology of the oil fields. The remaining US oil to be pumped yet is less than 20% of the oil the US was originally equipped with before the oil bonanze started. In other words, we already used more than 80% of our own oil. What is left, could power our way of life for less than 5 years if imports were not allowed. Energy independence is a delusion.

It is a great tragedy that this simple truth, 30 years after the onset of the production decline, is still unknown to the educated people of this country.

Hydrocarbons to Electrons: How Long Will the Transition Take?

The title is misleading. Burning hydrocarbons releases energy. In that sense, hydrocarbons can be viewed as a store of energy. Electrons do not store any energy. Electrons are everywhere. It takes energy to make them flow, that is, to produce electricity. What we need is a transition from hydrocarbons to a flow of electrons. The energy is in the flow, not in the electrons themselves.

Why the Discrepancy Between Oil and Gold?

The price of gold is not a reflection of supply and demand (there is a huge oversupply of mined gold above ground). In fact, the price of gold is a barometer for the health of the monetary system. A rising price of gold indicates trouble. For that reason, central banks do manage the price of gold within certain limits in order to keep the confidence into the present system. In such a system, buying gold means acquiring insurance against the unthinkable event.

Gold is money (according to J.P Morgan). No form of money can store wealth. Oil is wealth. More generally, wealth is any form of assets which allow survival now and in the future. (If you can not attract a woman, you have no future.) Although it is true that gold can be exchanged into real wealth, that should not tempt us to think that gold is wealth. If nobody is going to share food with you, you are going to perish regardless of how much gold you own. The acceptability of gold in the market depends on the marginal surplus of real wealth. If the farmer is starving, he will not share with you his remaining food. Ownership of gold does not protect against the risk of drowning and starving to death. For that reason gold can not be wealth.

Regarding the gold/oil ratio, that ratio will continue to go down. People who do not believe that do not understand the consequences of peaking energy production. For the next 20 years, oil will be a better investment than gold. The oil market can not be controlled since it is too large. The gold market being very small has and continues to be controlled. Gold will continue to underperform inflation. Nevertheless, we can not afford not to hold gold.

Parabolic Move In Crude Oil Looks Extended

It is not the price of oil which is parabolic. It is the demand for oil which is going parabolic. The world consumes more than 84 million
barrel of oil per day which is insane. At that rate (equivalent to 40,000 gallons per second), all the oil will be gone within a few decades.