According to Gold, Gas Prices Aren't Rising; Dollar is Falling

http://www.forbes.com/sites/louiswoodhill/2012/02/22/gasoline-prices-are-not-rising-the-dollar-is-falling/

What the politicians, analysts, and pundits are missing is that prices are ratios. Gasoline prices reflect crude oil prices, so let’s use West Texas Intermediate (WTI) crude oil to illustrate this crucial point.

As this is written, West Texas Intermediate crude oil (WTI) is trading at $105.88/bbl. All this means is that the market value of a barrel of WTI is 105.88 times the market value of “the dollar”. It is also true that WTI is trading at €79.95/bbl, ¥8,439.69/barrel, and £67.13/bbl. In all of these cases, the market value of WTI is the same. What is different in each case is the value of the monetary unit (euros, yen, and British pounds, respectively) being used to calculate the ratio that expresses the price.

In terms of judging whether the price of WTI is high or low, here is the price that truly matters: 0.0602 ounces of gold per barrel (which can be written as Au0.0602/bbl). What this number means is that, right now, a barrel of WTI has the same market value as 0.0602 ounces of gold.
During the 493 months since January 1, 1971, the price of WTI has averaged Au0.0732/bbl. It has been higher than that during 225 of those months and lower than that during 268 of those months. Plotted as a graph, the line representing the price of a barrel of oil in terms of gold has crossed the horizontal line representing the long-term average price (Au0.0732/bbl) 29 times.

At Au0.0602/bbl, today’s WTI price is only 82% of its average over the past 41+ years. Assuming that gold prices remained at today’s $1,759.30/oz, WTI prices would have to rise by about 22%, to $128.86/bbl, in order to reach their long-term average in terms of gold. As mentioned earlier, such an increase would drive up retail gasoline prices by somewhere between $0.65 and $0.75 per gallon.

At this point, we can be certain that, unless gold prices come down, gasoline prices are going to go up—by a lot. And, because the dollar is currently a floating, undefined, fiat currency, there is no inherent limit to how far the price of gold in dollars can rise, and therefore no ultimate ceiling on gasoline prices.
Federal Reserve Chairman Ben Bernanke uses a “core CPI index” that excludes food and energy to guide monetary policy. From Big Ben’s point of view, rising gasoline prices are not a problem. For the rest of us, they are becoming a big problem.

Over the centuries, gold has been “the golden constant”. Eventually, all prices equilibrate with gold. This is why gold represents the best available standard in terms of which to define the value of a monetary unit. Forty-one years ago, when the value of the dollar was defined in terms of gold at $35/oz, WTI was selling for $3.56/bbl.
Right now, the threat posed by rising gasoline prices is not just to family budgets. An even greater danger is that the government will use escalating oil prices as an excuse to do something stupid.

After President Nixon abrogated the Bretton Woods monetary arrangement in stages starting in September 1971, both gold prices and oil prices started to rise. The government responded by imposing wage-price controls. This made a bad situation much worse.

This time around, the stupid policies being considered to “deal with” rising gasoline prices include additional cuts in payroll taxes and higher taxes on energy producers.

During the 1970s, the toxic combination of a weak dollar, high tax rates, and onerous regulations introduced a new word into America’s economic vocabulary: stagflation. Reaganomics banished this word to the history books. Now, President Obama and Fed Chairman Bernanke are teaming up to give stagflation another try. It is not likely that Americans will like it any more this time around than they did 40 years ago.

Should we re-baptize the dollar the American Pesos? A Canadian dollar use to be worth 60 cents US, now a US dollar is worth 98 Canadian cents. This in less than 10 years.

Good article, Bud!

California gas prices spike 8 cents a gallon overnight; analysts cite supply issues

SAN FRANCISCO - Landscaping business owner Sebastian Figueredo stood Thursday at a Union 76 gas station near the San Francisco-Oakland Bay Bridge, holding his phone up high so he could get a photo of the price sign.
A gallon of regular at the station was selling for $4.79, up from $4.59 the day before. Premium gasoline was $4.99.
"Every time these go up, I can't just raise my hourly rate up as well," Figueredo complained.
Throughout California, the average price of a gallon of regular gasoline jumped 8 cents overnight to $4.32 and was up 18 cents during the past week, according to the AAA's Daily Fuel Gauge.
Analysts said it was poised to quickly soar past $4.37 a gallon — the high so far this year — after refinery outages and pipeline problems left the state short on supplies.
The highest average price ever for regular gasoline in the state was $4.61 in 2008.
Among the recent disruptions, an Aug. 6 fire at a Chevron Corp. refinery in Richmond left one of the region's largest refineries producing at a reduced capacity. A power failure in Southern California has affected an Exxon Mobil Corp. refinery, and a Chevron pipeline that moves crude to Northern California was also shut down.
Elsewhere, the national average for gas is $3.78 a gallon, the highest ever for this time of year. However, gas prices in many states have started moving lower, which is typical for October.
But in California, gasoline inventories are the lowest in more than 10 years — a situation made worse by the state's strict pollution limits that require a special blend of cleaner-burning gasoline.
Patrick DeHaan, senior petroleum analyst at GasBuddy.com, said he is seeing the highest prices in the state around Los Angeles, where at least five stations have crossed the $5 a gallon mark, including $5.29 in Burbank and $5.11 in Norwalk.
Prices will keep rising, he says, because in the past week wholesale gasoline prices have jumped $1 a gallon, but average retail prices have only increased 30 cents.
"This is one of the easiest forecasts: Retail prices are going to skyrocket," he said.
The jump in wholesale prices can be particularly tough on independent gas stations that often pay more for their gas because they are not part of a larger chain.
Tom Kloza, chief oil analyst at Oil Price Information Service, said he's heard of a few California station owners shutting their pumps rather than charging the $4.90 a gallon or more necessary to break even.
"Wholesale price increases lead to retail price increases," Kloza said. "But there is some restraint among companies who do not want to exercise their current pricing power and irritate their customers."
At the San Francisco 76 station, the 42-year-old Fugueredo believes the push for profits by oil companies is behind the increases.
"I heard that the recent heat wave had affected refineries in California, and the Chevron refinery blew up. But the oil companies are just greedy," he said, standing next to his white panel van.
Other San Francisco motorists have been taking the recent price spikes mostly in stride, but now that gas is closing in on $5 a gallon, some are considering changing their transportation habits.
"I might actually park my car for a while and start biking," said Sam Hewatt, 25, who was filling his sedan with $4.99-a-gallon premium.
Some analysts believe prices nationally will begin to decline soon but say California could see a longer spike given its unique fuel requirements.
"Nationally, I believe most prices will wobble to and fro for the next week or so, with an eventual slow but steady attrition in retail gas prices, particularly in the Midwest and Southeast," Kloza said. "California is a wild card."
___


I noticed today that locally, gas prices have spiked 30 to 40 cents overnight.
So, with a one-dollar wholesale price rise still not passed on, we're in for a bumpy ride. cn

Shouldn't Buck be in here reporting this stuff as spam?

Gold is the barometer of the health of the dollar. If the price of gold is going up, the value of the dollar is going down. Gold will keep increasing in price until at least 2015 since interest rates will be kept at 0 until then, according to the Fed.

Tomorrow there will be more refined gold above ground than at any time in human history. The price of gold has nothing to do with supply and demand.

I say we do QE4, so that Obama can show gold whos boss

FreedomWorks said:

I say we do QE4, so that Obama can show gold whos boss

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Obama doesn't have any say over that though.

What scares me about gold is that the government has already confiscated gold once in our history. They have set precedent. What is to stop a government from demanding all gold for government bonds once the currency collapses?

NoDrama said:

Obama doesn't have any say over that though.

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Yup. The bad economy is Bush's fault. Thats why Ben will do it. Obama has no say in whether our economy recovers or not. We should just ride out Obama's wave four more years and hope Bush didn't screw us up too bad. If Obama can't do it then nobody can. Hes my hero

Well... couple things about the government taking all our gold.

Back then, at least according to someone who lived during that time, everyone was quite happy to sell their gold because the government was paying a premium. I'd pay a premium too if I was about to inflate the currency.

Turns out the government can't legally make you sell gold without giving you fair value for it. In the case of gold bullion, fair value is easy to determine. In the case of a 100 year old gold coin, your wedding ring, a gold dildo or your gold teeth, gold it harder to value. Gold items which have a value other than their gold content must be properly appraised so you can recieve fair value. Hence, it is unlikely that they will attempt to force the population to sell back anything other than bullion.

As a general rule of thumb, if a government is acting like they want your gold, you can assume that a stiff currency screwing sometime in the near future is likely.

Kervork said:

Well... couple things about the government taking all our gold.

Back then, at least according to someone who lived during that time, everyone was quite happy to sell their gold because the government was paying a premium. I'd pay a premium too if I was about to inflate the currency.

Turns out the government can't legally make you sell gold without giving you fair value for it. In the case of gold bullion, fair value is easy to determine. In the case of a 100 year old gold coin, your wedding ring, a gold dildo or your gold teeth, gold it harder to value. Gold items which have a value other than their gold content must be properly appraised so you can recieve fair value. Hence, it is unlikely that they will attempt to force the population to sell back anything other than bullion.

As a general rule of thumb, if a government is acting like they want your gold, you can assume that a stiff currency screwing sometime in the near future is likely.

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It is my understanding that the reason the government bought up all the gold is that they could no longer trade US dollars for trade with other countries. ER: the dollar was already fucked but maybe people didnt know that. It was a different age. If the currency crashes this time it will be virtually instantaneous.

If the government cannot purchase fuel, resources, etc. with dollars it will need something else. The only other option is really gold or the confiscation of resources AKA (Atlas Shrugged). If we dont have the resources, using Oil and/or Gasoline as an example the government would need a commodity that had a set value with all currencies, is easily transportable, etc.

Now, the government cant make you sell your gold without fair value, but if they issue a piece of paper saying it is *fair value*, where is your argument that it is not? We are printing worthless paper right now, what is the difference what is actually printed on it?

What they would make you sell, be it bullion or heirlooms would probably be based on how fucked the government was...

I disagree....Gold and Petroleum are two independent resources with different economic impact. While both are "finite" resources, gold is much harder to mine, therefore making it a more expensive commodity. Petroluem is still plentiful, especially as new technologies emerge in the form of shale oil extraction and re-injection of "dead" wells to make them produce. The price of gasoline will rise, FOR CERTAIN, but we will never pay $100 a gallon for oil whereas we are willing to pay $1600/oz for gold....

VonWeeden said:

I disagree....Gold and Petroleum are two independent resources with different economic impact. While both are "finite" resources, gold is much harder to mine, therefore making it a more expensive commodity. Petroluem is still plentiful, especially as new technologies emerge in the form of shale oil extraction and re-injection of "dead" wells to make them produce. The price of gasoline will rise, FOR CERTAIN, but we will never pay $100 a gallon for oil whereas we are willing to pay $1600/oz for gold....

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That really depends on how much our country devalues the dollar. In addition, if we lost reserve status it would be affected even more. The moment people lose faith in the value of that paper it wont be worth wiping your butt with it.

Go watch "End of the Road"

NLXSK1 said:

What scares me about gold is that the government has already confiscated gold once in our history. They have set precedent. What is to stop a government from demanding all gold for government bonds once the currency collapses?

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......Lead

VonWeeden said:

I disagree....Gold and Petroleum are two independent resources with different economic impact. While both are "finite" resources, gold is much harder to mine, therefore making it a more expensive commodity. Petroluem is still plentiful, especially as new technologies emerge in the form of shale oil extraction and re-injection of "dead" wells to make them produce. The price of gasoline will rise, FOR CERTAIN, but we will never pay $100 a gallon for oil whereas we are willing to pay $1600/oz for gold....

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The only reason we will never pay 100 bucks a gallon is because we won't be able to. Your imagining that advanced tecniques will forever make petrolium plentiful does not make it so. There is an end to oil - all the finances and science in the world is not keeping the Saudi fields from pumping significant sea water with their crude - a sure sign that the end is near. Gold is not regularly burned, the majority of all the gold ever recovered is still with us. Not so with petroleum

canndo said:

The only reason we will never pay 100 bucks a gallon is because we won't be able to. Your imagining that advanced tecniques will forever make petrolium plentiful does not make it so. There is an end to oil - all the finances and science in the world is not keeping the Saudi fields from pumping significant sea water with their crude - a sure sign that the end is near. Gold is not regularly burned, the majority of all the gold ever recovered is still with us. Not so with petroleum

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We have hundreds of years of oil at our current usage rate...

Sand is finite too!!! You should be protesting the making of glass because eventually we are going to run out!!

canndo said:

The only reason we will never pay 100 bucks a gallon is because we won't be able to. Your imagining that advanced tecniques will forever make petrolium plentiful does not make it so. There is an end to oil - all the finances and science in the world is not keeping the Saudi fields from pumping significant sea water with their crude - a sure sign that the end is near. Gold is not regularly burned, the majority of all the gold ever recovered is still with us. Not so with petroleum

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Hemp oil will replace petroleum, everything will be fine.

NLXSK1 said:

We have hundreds of years of oil at our current usage rate...

Sand is finite too!!! You should be protesting the making of glass because eventually we are going to run out!!

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Keep dreaming - we have been at peak production for some time - of course we have "hundreds of years of oil", but not if we continue to burn it at our present rate.

Sand is renewable.