The Great Gold/Oil Price Flip
Silver Bear Cafe
August 2nd, 2012
Reader Views: 626
Gold prices will outperform oil prices in the decades to come
Now more than ever, I more firmly believe my prior predictions that gold will significantly outperform oil in the decades to come.
Deflation (seen by lower prices) is the natural birthright of the advancement of mankind.¬† If men are more productive, more efficient, more economic, and advancing, then the prices for the things they produce and trade will naturally decline over time.¬† The primary factor that thwarts this major free market process is the interference by oppressive governments that create excess regulations, restrictive trade barriers, excessive taxes, theft through confiscations, and artificial scarcity, which changes this natural birthright of mankind, the lower prices and deflation.
Deflation is not a “risk”.¬† It is a benefit.¬† Deflation rewards savers.¬† Deflation rewards those who can save money through restraint and self control.¬†¬† Self Control is one of the fruits of the Holy Spirit.
Lower commodity prices are seen to be the overall trend of mankind of the last 100 years.¬† (Present commodity boom during the currency inflation, when measured in that currency is the exception.)¬† Price is determined by money.¬† The trouble is that money is being debased faster than the deflation, which is creating price inflation, instead of the proper deflation that we should expect, which distorts the picture if you measure prices in dollars, as the dollar is an unreliable measure.
As the gold price has risen over the last 12 years, we have seen deflation when things are measured by gold, but only a reversion to the mean, so far.¬† We have not yet seen the full manifestation of deflation, a full deflation that should reflect the real increased productivity of all the advancements of mankind of the last 100 years.
As I now see things more clearly, oil prices are artificially inflated by wrong-headed government policy.¬† There were 4 speakers at freedom fest that made this point.¬† The Federal Government owns most of the land west of the Mississippi.¬† Fully 90% of this land is off limits to oil exploration.¬† Why?¬† North Dakota is open.¬† North Dakota is booming, with unemployment down to 3-4%, and many men are earning 6 figures working in the oil fields.
The USA could fully produce all the oil it needs, if only government got out of the way and let men produce it.
Oil prices must, and will, go down, because oppressive government, and market distortions, especially in the age of the internet, cannot continue forever.
Gold prices must, and will, continue to go up, if only to fully reveal the natural deflation due to the increased productivity of mankind.
The biggest reason for the coming gold/oil price ratio change is that the current historic price ratio over the last 150 years is “too recent” to be effective in long term “reversion to the mean” forecasting.¬† The problem is that the world’s bankers began the long process of abandoning gold as money within this recent time frame in human history, so there is no historical guide as to what oil prices should be when gold is being used as the predominant form of money.
Instead, we have to use our intuition and rational thoughts to help figure it out.
World annual oil production is about 90 million barrels per day.
x 365 days/year x $100/barrel =
That’s about $3.3 trillion per year in dollar value, of oil production.
World annual gold production is about 80 million ounce per year.
x $1600/oz =
That’s about $129 billion per year in dollar value, of gold production.
Using rational thought, I can only assume that if gold were money, and nothing else, no paper, that the world would spend less than world annual gold production on world annual oil production, because some of world annual gold production would be spent on other things, because gold is money, and oil is not.
That means that if we assume that gold production does not increase, and if value increases so that gold production is at least valued at twice oil production, (so that the world could use some gold to spend on something else other than oil) and if the value of oil does not go up, then the value of gold production could be:
$6.6 trillion / 80 million oz. = $82,500/oz.
Interestingly, this is shockingly close to the value if all US money were backed by US gold, as follows:
$18 trillion / 261 million oz. = $69,000.
What’s more likely is that oil values will fall a bit, too, reducing the high of the first number, $82,500, which is excessive.
But there are other long term fundamental reasons to expect oil prices to go down, as follows.
First, I’ll list my bias, right away.¬† Daniel in the Bible says that in the time of the end, people will go to and fro, and knowledge will increase.¬† This means that travel and knowledge will increase.
Daniel 12:4 ‚ÄúBut you, Daniel, shut up the words, and seal the book until the time of the end; many shall run to and fro, and knowledge shall increase.‚ÄĚ
This trend of increased travel has actually been happening exponentially in the last 100 years.
Occasionally, I’ll read of another writer who will predict that travel will greatly decrease.¬† To this I’ll say, don’t predict the change in the trend until the change in the trend has at least started to change!¬† It’s safer to predict that the current trends that are in place will continue, unless they are unsustainable for some fundamental reason.
The second reason oil prices will go down, in terms of gold, is that it’s not just the USA that has restricted oil production.¬† Fully 90% of the world’s oil production has been confiscated by the national governments around the world.¬† This is a tremendous disincentive to the capitalists of the world, literally threatening them to not explore for oil, otherwise it will be stolen 90% of the time.¬† Higher oil prices are thus helping to prop up the thieving dictators of the world.¬† For this reason alone, the USA should vastly increase its own oil production.¬† Not only to become “energy independent”, but to break the backs of so many of the thieving and oppressive governments the world over.
Producing more of our own oil will not only increase our own national wealth, it will increase our own freedom, and it will increase freedom around the world.
To bring peace to the world, the USA should stop all military spending, and simply remove the domestic restrictions on oil exploration and production.
For beauty queens who would pray for “world peace”, they only need to pray that our own government get out of the way of domestic oil production.
But more importantly, oil profits need to be invested into silver, since the oil market is way too big at $3 trillion, and the physical silver investment market is way too small at $3 billion, which is 1000 times smaller.¬† In this way, excessive government money printing will be revealed to be another layer of oppressive fraud that will come to an end once it is revealed through higher silver prices.
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