There is much talk about the future availability of oil. Or shall we say "cheap oil"? Almost everything we enjoy today is a result of the constant flow of oil over the last century. And it follows that all of the PRICES we pay for everything we enjoy today is a result of the CHEAP flow of oil. But is this "CHEAP flow" a natural phenomenon, or a manmade one?
Oil has been the key to the fantastic success of the West over this period of time. Therefore it follows that the true VALUE of oil is immeasurable! We complain when the cost of a gallon of gas rises to nearly $5, but can we possibly know the true VALUE until we have to do without?
The COST of living without oil is perhaps the greatest burden [PUNISHMENT] that can be placed on a modern nation. For this reason, oil is the MOST POLITICAL TANGIBLE.
In the past, nations have paid a VERY HIGH PRICE for oil when manmade conditions prohibited (rather than ENABLED) the "CHEAP flow" of oil. South Africa under sanctions (1985-1991) is one example.
So what is the TRUE PRICE of oil? What is the TRUE VALUE of oil? Is it $3 per gallon of gasoline? Or is it the VERY DEAR PRICE we would pay if it wasn't flowing our way?
What is a responsible government to do? It must look to the future and SECURE the inflow of oil. Why has the US stopped looking for new oil in the ground? Because long ago it SECURED the "CHEAP flow" of oil! A manmade phenomenon! The future "CHEAP flow" of oil can only be secured three ways. 1.) Own the oil in the ground, 2.) amass wealth reserves desired by those who own the oil in the ground, or 3.) fool (trick) OTHERS into paying the VERY HIGH PRICE (in gold) for the "CHEAP flow" of oil to your shores.
Arabia has oil in the ground. It does not have gold in the ground. But it does VALUE the precious metal very highly. It always has. Even BEFORE oil became WEALTH.
The exploding world dependence on the "CHEAP flow" of oil has brought GREAT WEALTH to Arabia. Up until 1971 the ease of trading oil for dollars was accepted because these "casino chips" could be exchanged at the CASHIER WINDOW (the gold window). Then, in 1971 the "CASHIER" was closed for good.
What followed was "the oil crisis of 1973". From Wikipedia:
End of Bretton Woods
On August 15, 1971, the United States pulled out of the Bretton Woods Accord taking the US off the Gold Exchange Standard (whereby only the value of the US dollar had been pegged to the price of gold and all other currencies were pegged to the US dollar), allowing the dollar to "float". Shortly thereafter, Britain followed, floating the pound sterling. The industrialized nations followed suit with their respective currencies. In anticipation of the fluctuation of currencies as they stabilized against each other, the industrialized nations also increased their reserves (printing money) in amounts far greater than ever before. The result was a depreciation of the value of the US dollar, as well as the other currencies of the world. Because oil was priced in dollars, this meant that oil producers were receiving less real income for the same price. The OPEC cartel issued a joint communique stating that forthwith they would price a barrel of oil against gold. This led to the "Oil Shock" of the mid-seventies... Until the Oil Shock, the price remained fairly stable versus other currencies and commodities, but suddenly became extremely volatile thereafter... The substantial price increases of 1973-74 largely caught up their incomes to Bretton Woods levels in terms of other commodities such as gold.
Then, in the early 1980's, the situation was brought back under control. A leveraged system of paper gold forward sales was set up to keep the price of gold (DOWN) under control, so that OTHER people's PHYSICAL gold could be shipped to Arabia at a low DOLLAR price. This would satisfy "the owners of the oil in the ground" and SECURE the "CHEAP flow" of oil to the US who had the SOLE privilege of creating those dollars out of thin air. From Another:
It's more complicated than this but here is a close explanation. In the beginning the CBs didn't sell their own gold. They ( thru third party ) found someone else who had bullion. That "party" sold to a broker who sold forward for a mine or speculator or government ) . In the end the 3rd party had the backing from the broker that he had backing from the CB to supply physical if needed to put out a fire. The CB held a very private note from the broker as insurance and was paid a small fee. This process mobilized free standing bullion outside the government stockpiles. The world currency gold price was kept down as large existing physical stockpiles were replaced by notes of future delivery from the merchant banks ( and anyone else who wanted to play ) .
This whole game was not lost on some very large buyers WHO WANTED GOLD BUT DIDN'T WANT IT'S MOVEMENT TO BE SEEN! Why not move a little closer to the action by offering cash directly to the broker/bank ( to be lent out ) in return for a future gold note that was indirectly backed by the CBs. That "paper gold" was just like gold in the bank. The CBs liked it because no one had to move gold and it took BIG buying power off the market that would have gunned the price! It also worked well as a vehicle to cycle oil wealth for gold as a complete paper deal.
So, in 1983 Barrick Gold was formed...
And once again physical gold was flowing INTO Arabia and "CHEAP" oil was flowing OUT. But SOMEONE was paying the TRUE PRICE for this oil.
Then, probably sometime in the early 1990's, a group of Europeans that had been planning for a single currency in the "Eurozone" with the ECU that began in 1979 (at the height of the dollar crisis) and later became the EMU and the Euro, came to the realization that the path the dollar (and the entire international monetary and financial system) was on was essentially a DEAD END. It was not sustainable! At some point in the future this system, and its MONETARY FOUNDATION, would (MUST) collapse. This was not a plot to collapse the dollar. It was, instead, a RECOGNITION of the inevitable!
So what is a responsible government to do? "It must look to the future and SECURE the inflow of oil." And given the three choices listed above, ONLY ONE COULD WORK! [2.) amass wealth reserves desired by those who own the oil in the ground.]
So the Euro was founded with the requirement that gold reserves MUST be (PHYSICALLY) held and MUST be marked to the (RISING) market price of gold. What the Euro architects recognized was that this new dollar PAPER gold market would (MUST) at some point transition into a purely PHYSICAL gold market. This was a MATHEMATICAL CERTAINTY.
Back to Another from October, 1997 [emphasis mine]:
Everyone knows where we have been. Let's see where we are going!
It was once said that "gold and oil can never flow in the same direction". If the current price of oil doesn't change soon we will no doubt run out of gold.
This line of thinking is very real in the world today but it is never discussed openly. You see oil flow is the key to gold flow. It is the movement of gold in the hidden background that has kept oil at these low prices. Not military might, not a strong US dollar, not political pressure, no it was real [PHYSICAL] gold. In very large amounts. Oil is the only commodity in the world that was large enough for gold to hide in. No one could make the South African / Asian connection when the question was asked, "how could LBMA do so many gold deals and not impact the price". That's because oil is being partially used to pay for gold! ["CHEAP oil to the West" was the HIDDEN part of the price Arabia was paying for large quantities of PHYSICAL gold. HIDDEN --"gold hiding in oil"-- and did not affect the VISIBLE $demand fundamentals because most Westerners were perfectly happy with PAPER gold] We are going to find out that the price of gold, in terms of real money ( oil ) has gone thru the roof over these last few years. People wondered how the physical gold market could be "cornered" when it's currency price wasn't rising and no shortages were showing up? The CBs were becoming the primary suppliers by replacing openly held gold with CB certificates. This action has helped keep gold flowing during a time that trading would have locked up.
(Gold has always been funny in that way. So many people worldwide think of it as money, it tends to dry up as the price rises.) Westerners should not be too upset with the CBs actions, they are buying you time!
So why has this played out this way? In the real world some people know that gold is real wealth no matter what currency price is put on it. Around the world it is traded in huge volumes that never show up on bank statements, govt. stats., or trading graph paper.
The Western governments needed to keep the price of gold down so it could flow where they needed it to flow. The key to free up gold was simple. The Western public will not hold an asset that's going nowhere, at least in currency terms. (if one can only see value in paper currency terms then one cannot see value at all) The problem for the CBs was that the third world has kept the gold market "bought up" by working thru South Africa! To avoid a spiking oil price the CBs first freed up the public's gold thru the issuance of various types of "paper future gold". As that selling dried up they did the only thing they could, become primary suppliers! And here we are today.  In the early 1990s oil went to $30++ for reasons we all know. What isn't known is that it's price didn't drop that much. You see the trading medium changed. Oil went from $30++ to $19 + X amount of gold! Today it costs $19 + XXX amount of gold! Yes, gold has gone up and oil has stayed the same in most eyes.
Now all govts don't get gold for oil, just a few. That's all it takes. For now! When everyone that has exchanged gold for paper finds out it's real price, in oil terms they will try to get it back. The great scramble that "Big Trader" understood may be very, very close.
Now my friends you know where we are at and with a little thought , where we are going.
The LOW price of gold (1981-2001) was meant to trick YOU into giving up your PHYSICAL gold, so that the CB's didn't have to. But some non-Westerners knew better! They got on the RECEIVING end! Once YOU gave up all your gold, the CB's had to contribute some of their's to this PHYSICAL FLOW. More from Another:
Well a funny thing happened right after the Gulf war ended. What looked like big money before turned out to be little money as some HK people, I'll call them "Big Trader" for short, moved in and started buying all the notes and physical the market offered. The rub was that they only bought low, and lower and cheaper. They never ran the price and they never ran out of money. Seeing this, some people ( middle east ) started to exchange their existing paper gold for the real stuff. [Today, think about Dubai requesting delivery of its gold from London] From that time, early 1997 LBMA was running full speed just to stay in one spot! In other words paper volume had to increase to the physical volume on a worldwide scale, and that was going to be one hell of a jump. It could not be hidden from the news any longer. [ LBMA daily volume leaks out on January 30, 1997 --> 07:05 AM on Monday July 14, 1997 LBMA goes public with daily volume ]
This was not far from the time that "Big Trader" said that "if gold drops below $370 the world would see trading volume like never before seen". The rest is history. Now the CBs will have to sell 1/3 to 1/2 of their gold just to cover what's out there. [Hello Gordon Brown?] To use the Queens English "it ain't gonna happen dude"! [Apparently Gordon Brown didn't get the memo!]
Everything is now upside down and reversed. The more the CBs sell outright the more the price will rise.
It's not a bearish sign anymore. They will now sell to keep the price rising slowly.
So in early 1997 some serious cracks appeared in the dollar castle walls. Ever since that time, the explanations we hear about "official gold action" in the news media is actually the OPPOSITE of what is really happening behind the scenes. What is happening is a FUNDAMENTAL shift in the FLOW of gold as these GIANTS prepare and SECURE their future flow of oil. No more is it gold for oil. Today it is dollars for gold for FUTURE OIL.
Someone once said, "Pricing power is a very limited freedom." So who is pricing the dollar today? Who is pricing oil? Who is pricing gold? Do ongoing pricing changes reflect a CONTROLLED DEMOLITION? If so, why? Who is controlling?
[This blogger suspects that the dollar system of leveraged paper derivatives has ALREADY lost control of pricing PHYSICAL things! (Think about PHYSICAL oil stored in tankers! For profits you must control the PHYSICAL now.) And it (the dollar system) is receiving a HUGE assist from OTHER FACTIONS. (Think about the sale of 1 million ounces of gold to DB by the ECB - this barely avoided a collapse of the paper gold market) This ASSIST is only temporary to enable some last-minute REBALANCING and EVACUATIONS from the dollar den! Once this ASSIST is terminated...]
More questions. Is it really necessary to keep another man [nation] in debt to you, in order to have wealth?
With so little physical gold metal available, HOW DO these true giants get large quantities?
And ever since we have evolved to virtual, digital, purely symbolic monetary units of credit for trade, does it make ANY sense AT ALL to store these things as savings?
In the future, if the US dollar turns out NOT to be what you thought it was, how will you get what you need?
Does the US dollar fulfill the definition of money? Including the "store of value" part?
Watching the gold market today, are we seeing an evolution of supply and demand principles the same as in all commodities? Or are we witnessing a fundamental shift of THOUGHT as the world rebalances PHYSICAL GOLD POSSESSION?
When the revaluation/devaluation happens it will happen fast. Within 30 days. During that time there will be no more REBALANCING. Possession will be OWNERSHIP, and ownership will be LOCKED. There will be no last minute CONVERSION from paper to physical. Paper will be paid with paper, and physical trading will STOP. When it starts again, the entire gold market as we know it today will be a PHYSICAL GOLD MARKET. And the price of gold will be whatever the world sets it at, WITHOUT the leverage of paper futures contracts to hold it down.
When it is all said and done, we will still have paper money for the ease of daily transactions. We may even have fancy purely digital units of credit. But for the "store of value" part of the system, we will have the PHYSICAL GOLD MARKET. The INEVITABLE, MATHEMATICALLY CERTAIN conclusion of the US dollar financial system's RACE down a DEAD-END STREET.