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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: PaulM who wrote (7722)	2/19/1998 11:43:00 PM
From: Michael	Read Replies (3) \| Respond to of 116762

Paul, From Michael, infdel <g> ANOTHER's point is that the price of oil--the freely determined market price implied by the current supply demand dynamic--is much higher than we think. It's, hypothectically, $40 a barrel. (Check out M-1, M-2 growth in the 80's, 90's). That statement encompasses two factors which can effect pirce. Money Supply and overall supply/demand balance for the commodity itself. I don't think the money supply argument holds water. The ratio of almost any commodity to money supply has changed drastically in the last twenty years.If that was a significant determinant of price then either they should all be a lot higher OR they are ALL ! being manipulated down. No ? Supply Demand balance. Where evidence suggests that the supply levels of oil are being kept "artificially" high which is the only way I can see of keeping the price down. Oil did almost reach $40 barrel back in the early eighties, The two predictable results of this were the bringing on-line of a huge amount of additional capacity, and a significant curtailment in demand. That's why oil was in a bear market for most of the eighties and early nineties. The fact that a lot of Iranian capacity was taken out during the Iran/Iraq war, and a further load during the Gulf war, when Kuwait's oil fields were burning, and Iraq could not export", without any long term spike up in prices suggests that there is still plenty of capacity on the supply side of the equation. by lowering the price of gold to a point $x.xx below its "true" value, so that the last $24 per barrel is paid with $x.xx worth of gold (with the gold discount).* The implication here is that the as long as say the Saudi's can buy x amount of Gold with their surplus income they'll accept a lower oil price. The only problem with this is that the Saudi's do not have any surplus income ! and haven't had for over ten years. They were already in a deficit in the late eighties, then the Gulf war caused another huge hit to their finances. By 1993 things were so bad that there were fears of them going under as Western banks became reluctant to roll over major credit lines. In 1994/95 their liquidity problems were such that Government employees were not being paid for months at a time and there was a severe contraction in the domestic economy. I left around then so I am not up to date with the last few years, but the stories I hear from my friends there is that the economy is still very depressed. Q3. Why would the West agree to a strategy that would eventually lead to an exlpoding gold price and therefore oil price? Best answered with a question: why does the west forestall recession with deficit spending when an even worse recession will occur when the principal is paid back with interest? I think there is a difference here Paul. With deficit spending the creditors take my paper so I still have some control. I can repudiate or devalue by inflation if it comes to the crunch. If the oil states have all the gold and gold becomes the new monetary standard - what am I going to do ? P.S. The theory is a long shot but much more interesting than the POG lately. ;-) Yup. Agree with that <g> Note I do tend to agree that the CB's are very keen to see Gold kept unattractive as an alternative to paper money. The impact of the kind of currency credibility problems that have beset Asian economies in recent months is a clear example of what motivates this. Like any scam though I think it has to come to an end. Let's just hope we are well positioned at that time and haven't burnt ourselves out waiting. Regards, Michael