Wednesday, February 22, 2012

Does it seem that gas prices are getting higher and higher?  Does to me.  However, they really aren't, rather it is the value of the dollar they are priced in that is falling.  The dollar is a fiat currency, meaning that it's value is not based on some constant, which is usually gold or silver or a combination of both. 

Using the value of an ounce of gold as a measure, is gas expensive?   Check out this Forbes article for a trenchant analysis, and one that will make you see the cost of anything in a new light.

The rub from the article:

"In terms of judging whether the price of oil 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."

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