Have a look at this long term chart of oil priced in dollars:
You'd think, looking at this chart that oil is getting expensive. Priced in dollars, oil is within spitting distance of its all time highs.
But when you price oil in gold, you get a completely different story.
Here's a chart dividing the price of one barrel of oil by the price of one ounce of gold over the same 20 year time period:
This chart tells a different story. It tells us that oil is relatively cheap now. It's about as cheap as it was back in late 1997. For the record, oil sold for about $20 a barrel back in 1997.
This chart tells us to buy oil, because it's likely to get a lot more expensive relative to a real form of money: gold.
But forget for a second that gold is real money – there's another compelling reason why it makes more sense to price everything in gold. That's because the supply and demand for gold is relatively flat.
First, look at the annual new supply of gold entering the market every year:
2,500 tons seems like a lot of gold, but it's really not that significant when you consider that total gold mined is about 165,000 tons. So total gold supply only increases about 2% per year (or less).
And demand is relatively static as well:
Compare this slow growth of gold supply and static demand for the HUGELY volatile supply of dollars:
Just between 2007 and 2008, the supply of dollars in existence more than doubled. It's only gone up since then.
Whereas there is a relatively stable amount of gold in existence, and a relatively flat demand for gold, the amount of dollars is all over the place. And we have NO WAY of knowing what that number will be in the next year or 10 – because the supply of dollars is NOT controlled by any predictable market force or constrained by any real world phenomena of scarcity or ability to consume.
So using the dollar to measure the price of oil – or anything else – is like using an elastic measuring tape to find your inseam.
And making predictions about the price of oil in dollars is like guessing how many angels can dance on the head of a pin – if the pin regularly doubled in size without notice.
That's why you should price everything in gold. It tells you the true ratio of a static, immutable commodity to other goods – without any erratic swings brought on by central banker manipulation.
Simply divide everything by the price of one ounce of gold to see the true pricing mechanism. It will help you decide what's really expensive or cheap at any given moment.
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