Oil And Gold Do Mix

Right now gas is selling for $3.03/gal at the station down the street from me and at a lot of other places in the County. We shake our heads and complain about the price and blame the Arabs/politicians/oil companies and every other greedy so and so in the book.

Here is a different take on the matter from Real Clear Markets:

... it's worth mentioning that not long after he was inaugurated as our 40th president, Ronald Reagan predicted a fall in the price of a barrel of oil. What made Reagan so confident?

Aware of the historical relationship between gold and oil, Reagan deduced that oil was due for a correction based on a 20% drop in the price of an ounce of gold since his election. Sure enough, by December of 1981 the price of a barrel of oil was nearly 20% lower than it had been one year before.

Looked at over a longer timeframe, from 1970 to 1981 the price of gold rose 1,219 percent, versus a rise in the price of oil 1,291 percent. This wasn't coincidental. With gold and oil both priced in dollars, and with gold serving as the best proxy for the latter's value, a jump in the gold price neatly foretold the oil "shocks" of the 1970s that were merely dollar shocks.

Follow the money. As the dollar went south, the price of oil went north.
Kinda makes sense. no?

Right now gold trades in the $1176 range, and the price of oil is roughly $79 per barrel. That an ounce of gold buys 15 barrels of oil signals yet again that the real price of oil has hardly changed at all over the last 10 years of allegedly costly crude. Still, $79 oil ensures $3/gallon gasoline as far as the eye can see, and it's a fair bet that the price will stay there so long as gold continues to test all-time highs.

The good news, however, is that this can be fixed. As evidenced by the dollar's major decline versus gold this decade, the dollar is very cheap. The dollar's debased nature explains expensive spot oil prices, high prices at the pump, and most important of all, it helps explain a difficult job outlook. With so much soggy money flowing into commodities least vulnerable to dollar weakness, the entrepreneurial economy where most jobs are created is losing out.

I can remember when gold was $35 an ounce:

A first classs postage stamp sold for 3 cents

I could buy chuck steak for 59 cents a pound.

A gallon of milk was 69 cents.

In 1971 I worked at a gas station where the most common fuel purchase was for $3 - it bought you nine gallons of gas and free silverware.

I attended an expensive private university for $800 tuition/semester (1967).

You could buy a nice little ranch style house for $15,000.

For now though, it's a waste of time to bemoan what many deem "expensive oil." Time is wasted because there's no such thing as expensive oil, and there never has been. Instead, we have a problem of Americans supposing that the dollar is fixed in value, when in fact the dollar floats.

Oil hasn't become expensive this decade; rather the dollar has become very cheap. Strengthen the dollar, and worries over nosebleed gasoline prices will quickly become a thing of the past. Absent that, to hope that something will become inexpensive when the unit of account in which it's priced continues to fall is to indulge in fantasy.

So the question now is, why is the dollar fallen into such deep kimchi? I suspect the gubbmint. Mandated gimme programs for the "disadvantaged" have dollars being taken away (taxes) from people who are capable of managing their affairs and given to people who are not capable of holding onto a nickel. The housing bubble was caused in this very fashion. People with marginal or no jobs at all were given loans to purchase homes which they otherwise could not afford and either way were incapable of maintaining. Too many dollars chasing after a finite number of items will artificially raise the price of those items and simultaneously debase the value of your currency.

The Bible states that the love of money is the cause of much evil (1 Tim 6:10). The love of government does the same thing for the same reason.

When Hell Freezes Over, Drill It Too

That's what ANWAR looks like according to this editorial from Investor's Business Daily:

We already drill in Alaska. More than 15 billion barrels of oil have been sent down the Alaska pipeline from Prudhoe Bay, just 60 miles west of the Arctic National Wildlife Refuge, over the last three decades, much more than the six months' supply predicted by critics.

As Energy Secretary Samuel Bodman notes, the development "footprint" would be minimal: "ANWR, in its totality, is about the size of South Carolina, and the area where we believe the hydrocarbons are located is about the size of Delaware, not to mention the exploration site would be no larger than about the size of (Boston's) Logan International Airport."

As for the "pristine" wilderness, the tiny portion of ANWR where drilling would occur is what hell would look like if it ever froze over. Winter on the coastal plain lasts for nine months. Total darkness reigns for 58 days. The temperature drops to 70 degrees below zero without the wind chill. Your spit freezes before it hits the ground.

Drill early, drill often and drill now. Set those oil rigs up so thick that ANWR looks like a porcupine's asshole during a quill eruption.