His own words...

[snowcat]

[Uncle Ted]

Actually, oil prices haven't gone up... the buying power of the dollar has gone down.



Ron Paul was right. Inflation is a tax.

Edit:

[YOUTUBE]dLGvybCr6AM[/YOUTUBE]

[cowboy]

Actually, oil prices haven't gone up... the buying power of the dollar has gone down.



Ron Paul was right. Inflation is a tax.

Edit:

[YOUTUBE]dLGvybCr6AM[/YOUTUBE]

While this chart may seem compelling at the outset, I see a couple of problems with it that may make it misleading. First, there is a scale issue that fails to capture the magnitude of price moves in terms of gold. This isn’t a big deal, but it needs to be corrected to accurately assess the value of commodities when stated in gold. Second, and more importantly, this is a chart of only one commodity (oil), and it is possible that this chart reflects increased demand for gold that corresponds with supply-side events in oil. It therefore seems logical that gold should be compared to more than one commodity before jumping to the conclusion that gold is the stable currency and an accurate inflation indicator.

Charting gasoline priced in gold and dollars seems a logical place to start in this analysis. If oil prices are stable when valued in gold, then the same would likely hold true for gasoline. To test this, I took average annual gold price data and compared it to the average annual gasoline price in Lincoln, NE. To fix the scale issue, the price in gold is (Gas Price Per Gallon/Gold Price Per Ounce)*500. This resulted in the following chart.



These results show the price of gas in both gold and dollars moving the same direction through the 90’s and early 2000’s, but a sharp divergence in 2006. This divergence suggests one of two things: 1) that increased demand (and real value) in gold during this timeframe drove the price of gasoline relative to gold downward, or 2) that the real demand for gasoline has decreased since 2006. Since I can’t speak as an expert on supply and demand forces in the gasoline market, I compared the price of gold to a commodity with which I am very familiar – corn.

In simple terms, corn prices are a function of one thing: the stocks to use ratio. In other words, the price will move to keep ending corn stocks (what’s left over) to about 10%-15% of total use. If the ratio falls below 10% the market reacts violently, increasing price to reduce demand in order to get the cushion back to the 10% level. The chart below shows the price of corn in dollars and gold (with the same magnification), and it looks very similar to the chart for gasoline. However, I have circled two areas that are interesting. Both of these areas are periods when the corn stocks/use ratio has been below 10%, but note the difference in the reaction in price relative to gold. During the 1996 supply shock, the value of corn in gold moved up parallel with its dollar value, but during the most recent three-year period in which corn stocks have been historically low, the value of corn in gold has been at an all-time low. In terms of supply and demand, there is no reason that real corn prices should be any lower than they were in 1996, and the fact that corn prices stated in gold are are at historic lows in periods of real supply-side problems suggests that the real value of gold, even after adjusting for inflation, has increased.



This analysis, particularly on the corn side, clearly indicates that the recent decline in value of various commodities when stated in terms of gold has not been a result of decreased real demand, but rather an increase in the demand and real value of gold. Because increased demand for gold has increased its real value, showing the price of anything in gold over time will overstate inflation.

[il Padrino Ute]

An excellent column from the Wall Street Journal on gas prices and Fearless Leader.

[snowcat]

http://www.politico.com/news/stories...#ixzz1nlwKN38K

High gasoline prices will make research into such alternatives more urgent, Chu said.

“But is the overall goal to get our price” of gasoline down, asked Nunnelee.

“No, the overall goal is to decrease our dependency on oil, to build and strengthen our economy,” Chu replied. “We think that if you consider all these energy policies, including energy efficiency, we think that we can go a long way to becoming less dependent on oil and [diversifying] our supply and we’ll help the American economy and the American consumers.”


Read more: http://www.politico.com/news/stories...#ixzz1nuZQr0AY

[venkman]

Obama and the environmentalist wackos like this Chu guy, want higher gas prices. Not in an election year, of course, but his environmental theology dictates higher gas prices so that we're forced to get off oil, which is destroying the planet. It's ridiculous of course, but it's what they believe as a matter of faith.

[Uncle Ted]

The chart I posted above is over a longer period of time but your data is very interesting. Clearly there has been a surge in the demand of gold since 2006.

While this chart may seem compelling at the outset, I see a couple of problems with it that may make it misleading. First, there is a scale issue that fails to capture the magnitude of price moves in terms of gold. This isn’t a big deal, but it needs to be corrected to accurately assess the value of commodities when stated in gold. Second, and more importantly, this is a chart of only one commodity (oil), and it is possible that this chart reflects increased demand for gold that corresponds with supply-side events in oil. It therefore seems logical that gold should be compared to more than one commodity before jumping to the conclusion that gold is the stable currency and an accurate inflation indicator.

Charting gasoline priced in gold and dollars seems a logical place to start in this analysis. If oil prices are stable when valued in gold, then the same would likely hold true for gasoline. To test this, I took average annual gold price data and compared it to the average annual gasoline price in Lincoln, NE. To fix the scale issue, the price in gold is (Gas Price Per Gallon/Gold Price Per Ounce)*500. This resulted in the following chart.



These results show the price of gas in both gold and dollars moving the same direction through the 90’s and early 2000’s, but a sharp divergence in 2006. This divergence suggests one of two things: 1) that increased demand (and real value) in gold during this timeframe drove the price of gasoline relative to gold downward, or 2) that the real demand for gasoline has decreased since 2006. Since I can’t speak as an expert on supply and demand forces in the gasoline market,

The U.S. demand for oil has drop off significantly since 2006...



In fact, oil imports at a 12 year low.

I compared the price of gold to a commodity with which I am very familiar – corn.

In simple terms, corn prices are a function of one thing: the stocks to use ratio. In other words, the price will move to keep ending corn stocks (what’s left over) to about 10%-15% of total use. If the ratio falls below 10% the market reacts violently, increasing price to reduce demand in order to get the cushion back to the 10% level. The chart below shows the price of corn in dollars and gold (with the same magnification), and it looks very similar to the chart for gasoline. However, I have circled two areas that are interesting. Both of these areas are periods when the corn stocks/use ratio has been below 10%, but note the difference in the reaction in price relative to gold. During the 1996 supply shock, the value of corn in gold moved up parallel with its dollar value, but during the most recent three-year period in which corn stocks have been historically low, the value of corn in gold has been at an all-time low. In terms of supply and demand, there is no reason that real corn prices should be any lower than they were in 1996, and the fact that corn prices stated in gold are are at historic lows in periods of real supply-side problems suggests that the real value of gold, even after adjusting for inflation, has increased.



This analysis, particularly on the corn side, clearly indicates that the recent decline in value of various commodities when stated in terms of gold has not been a result of decreased real demand, but rather an increase in the demand and real value of gold. Because increased demand for gold has increased its real value, showing the price of anything in gold over time will overstate inflation.

It looks like the stock/use ratio of corn has been pretty much under 15% since 2006...



However, the production of corn has been increasing even over this same period.



I wonder how much of this has to do with corn ethanol subsidies and import tariffs on sugar cane ethanol. It looks like that subsidy and the tariff hasn't be renewed by congress (yet?).