A while ago I mused about the rising price of gas. In the wake of the recent, dramatic 1.25% interest rate cuts, and the awesome campaign of Ron Paul, I started to wonder if there was a correlation between the devaluation of the dollar, inflation, the price of gold, and the price of oil.
It’s not easy to find great data, but I did find some rough numbers to work with from various online sources:
|Year||$:£ Exchange||$/Gallon oil||$/Ounce of gold|
This is very inexact, ignores fees, commissions, assumes averaged costs, etc., but it still led to some interesting conclusions:
- A barrel of oil has risen from $27.39 in 2000 to $88.96 today (down from ~$100 earlier this year).
- If inflation was 5% per year, gas should be $38.54 per barrel today based on 2000 prices. Inflation has been reported as less than 5% over that time, but does not include the price of oil.
- If in 2000, you exchanged $68.65 for £, then today exchanged your £ back to $ and bought oil, you would save 23%, as you would now have $88.96 to buy a barrel of oil.
- If in 2000, you bought $27.39 in gold, you could sell it for $88.89, leaving you just $0.07 short in buying a barrel of oil!
The emphasis of the rising price of gas over the past 7 years has been that oil is a scarce commodity, and that the wars and turmoil in the middle east have led to a significant rise in price. What is not widely mentioned is that gold has kept pace with the rising price of oil! This makes me believe that the diminishing value of the dollar is the real reason for the increase in the cost of oil. European countries have done a better job by not printing money as aggressively as the US Federal Reserve, but nothing like the value of gold. Again, greatly oversimplified as I don’t have perfect data or time to research this, but it does enough to confirm my suspicions that things just weren’t adding up.