Gold and Oil - Are they real money measuring real value?
Julian D.W. Phillips
In the face of gyrating currency markets it is difficult to get a real "price" on anything at the moment. We have often asked the question here, what is the price of gold? If it is $670 then we ask, what is the price of the $. Should the $ be valued in gold, the other way round to now? Well the same question should now be asked of oil. Why? Because the value of the $ is now subject to question internationally.
Three years ago the oil producers were happy with an oil price of $35, then last year with $60 and now the indication are that they are happy with $70, because the global economy is still growing with oil at that price. This is the criteria they set and they ignore any demand side definition of price.
The buying power of oil is not the criteria, it is how high can the price go without hurting global growth. This makes oil a definition of money, a measure of the value of the $ in market measurement terms. In doing this oil has taken an important step in defining values. It is now fair to say that $70 is worth a barrel of oil. With such a heady price rise the valuation of a currency in terms of income [interest] achievable, is going out the door.
Yes, O.P.E.C. did turn on the supply when the market faced real shortages, but only to show good faith in providing sufficient oil to avoid unnatural shortages and damage the need for oil in the global economy.
This does not make oil money, for it does not meet the popular measures of money [durable, a luxury, divisible and portable]. Yes, it meets some, which enable it to take this position. It does so on a world-wide front simply because we have arrived at a position where O.P.E.C. firmly controls the market in oil and will do so long as it is supply dominated.
Julian D.W. Phillips
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September 17th, 2019
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