Economic Philosopher

The Gold Standard: Still Unworkable in the Long Run

Eventually, the market will back the US dollar with gold, as it did in the 70s and 80s.

High Gold Prices: It's the Oil, Stupid

But you're missing the obvious that gold is ultimately money which is what whippet and I are arguing, it isn't some left over commodity. Why do you think central banks still own it and are now accumulating it? It is a store of value which is why 1 ounce of gold always buys roughly 15 barrels of oil, sometimes more, sometimes less You still haven't addressed the historical data that the gold/oil ratio is based on, which your theory should if it is to be taken seriously.


On Nov 24 06:01 PM Michael Fitzsimmons wrote:

> 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

If you did the research, you'd see that the long run mean of oil to gold is 1:15. This means that 1 barrel of oil costs 1/15th of an ounce of gold. This ratio fluctuates wildly, from 1:6 to 1:40 but it fluctuates around the mean of 1:15. When oil was $145, gold was $920 which is a ratio of 1:6, which means that oil is overvalued compared to gold. When oil crashed to $32, gold was $845, which is a ratio of 1:26, which means that oil was undervalued compared to gold. Currently oil is about $77, gold is 1165, so the ratio is 1:15, so oil is fairly valued compared to gold. So you can see that the ratio swings widely but always fluctuates around its mean. You can also see the same ratio in operation in the 1980s. Based on this historical data, your theory is backwards. Oil is increasing because gold is increasing.

Check out Adam Hamilton's oil/gold ratio graph (2nd graph), to see the ratio in a graph form. www.zealllc.com/2005/g...


On Nov 24 10:07 AM Michael Fitzsimmons wrote:

>
> 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.
>

High Gold Prices: It's the Oil, Stupid

This is a classic case of post hoc ergo propter hoc. Oil is higher because of gold. The long term oil/gold ratio is 1/15. This fluctuates but always reverts back to its mean. When gold goes to $2000, oil will be roughly $133. If Société Générale analyst Dylan Grice is correct and gold is $7,648, then oil is roughly $500 a barrel, which puts gas at about $13-$14 a gallon.

A Tale of Two Inflations: How We Arrived at Today's Economy

Perhaps a simpler answer still is Cantillon effects.

Where Is the Inflation?

The inflation is coming from the past increases in the money supply that gold and commodities haven't adjusted for.

Gold's Real Inflation Adjusted High Is $7,150/oz

If the inflation adjusted price of gold is $7150, then the price of silver would be $478 in order to preserve the gold/silver ratio of 1/15 in the 1980s.

Gold Prices: A Familiar Trend

Ahhh... the illusion of nominal prices.

Inflation or Deflation: How About Both?

The author needs to tie the analysis to the money supply in order to be credible. Inflation and deflation is not prices increasing or decreasing it is the money supply increasing and decreasing with prices as its effect.

Don’t Blame Free Markets for the Crisis: They Never Existed

Bravo...Free markets can't exist with a central bank.

Gold, the Money Supply and Inflation

Gold is and will be adjusting for the past 30 years of expansionary monetary policy. So ultimately it is the store of value.

How Economics Failed and What to Do Now

Economics didn't fail, Keynesianism failed.

Flaws in the Deflation Case

Based on Fisher's 2008 "Storms on the Horizon" speech (www.dallasfed.org/news...), inflation is guaranteed. To pay the US's debt, the government would have to cut discretionary spending by 97 percent which is impossible. Or they'd have to permanently increase federal income tax revenue by 68 percent, which is also impossible. The only option is to monetize the debt and suffer the disastrous effects of inflation.

Negative Interest Rates Can Solve Our Unsolvable Problem of Debt Load

But the problem is that negative interest rates won't spur economic production just more spending.

Monday Morning Gold Screed

For informational purposes only.

GATA has done extensive research on gold market manipulation and I recently came across this paper by Sprott Asset Management.

www.sprott.com/pdf/not...