On Sale: Gold and Silver

Oil prices drop nearly $4 after storm threat eases
NEW YORK (AP) -- Oil prices plunged to a three-month low Monday, briefly tumbling below $120 a barrel in another huge sell-off after Tropical Storm Edouard seemed less likely to disrupt oil and natural gas output in the Gulf of Mexico.

Also weighing on oil prices Monday was a report by the Commerce Department that consumer spending after adjusting for inflation fell in June as shoppers dealt with higher prices for gasoline, food and other items. That fed investors' expectations that a U.S. economic slowdown is sharply curbing U.S. demand for fossil fuels.

The dramatic dive came after traders learned that Edouard, aiming for the coasts of Texas and Louisiana, likely would not damage offshore oil and natural gas drilling platforms that sit in the storm's path.

Adding to the bearish sentiment around oil, Democratic presidential candidate Barack Obama on Monday proposed that the government sell 70 million barrels of oil from its strategic reserves to help lower gasoline prices. He had previously opposed tapping the supplies, but said in a major energy speech that past releases from the reserve have "lowered gas prices within two weeks."
http://biz.yahoo.com/ap/080804/oil_prices.html

What a load of crap. The first advisory that came out about Edouard was late on Sunday afternoon. This storm developed rapidly over the weekend, and it should be noted that prices NEVER rose on fears about this little storm. Why then does the media claim that prices are down on the "relief" that Edouard will NOT be disruptive to Gulf Oil interests...it was never a threat to begin with.

Yet again we get the excuse that Oil is down because "consumer spending is down" and that fact extrapolates into the "belief" that an economic slowdown will drastically reduce US demand for Oil. Last week, supplies of gasoline were down by a "surprising 3.5 million barrels. This threw cold water on the "speculation" that a slowing economy would curtail gasoline use. Not to mention the fact that gasoline demand rose to it's highest level of the year in last weeks report. It should be noted as well the obvious decline in gasoline prices that we have all seen. Gasoline is "on sale". Americans love sales, I suspect they will be using more gasoline should prices drop further.

The increased demand for gasoline at sale prices only make Barack Bin Laden's proposal to sell 70 million barrels of Oil into the market even more ridiculous...even if it did result in lower gasoline prices. Let's not forget that America consumes 20 million barrels of Oil each and EVERY day of the year. 70 million barrels of Oil would not even last four days. Is this not the dumbest idea you have heard of yet? The Strategic Petroleum Reserve is for EMERGENCIES, not for lowering gas prices! The lower gas prices go, the more Americans will use, and then they rise again...it won't solve a damn thing. Simple pandering to the sheep for votes. Pathetic and irresponsible example of leadership if ever there was one.

Why such a great interest in creating the "perception" that falling Oil prices will fix everything?
Because if gas is cheaper, then people will have more money to "just spend". After all, 70% of the US economy depends on consumer spending. It is your civic responsibility to spend, spend, spend! And falling Oil prices will destroy that evil Inflation. No, I'm sorry to inform everybody once again, falling Oil prices will do NOTHING to stop Inflation. Inflation is on the fast track now, and Oil prices are not the cause of it. That is what the government wants you to believe. They preach it every chance they get aided and abetted by the subservient news media.

Inflation is caused by an increased money supply. And the US Government is increasing the US Dollar supply in excess of 15% annually. That is causing the Inflation. That is causing the rising Oil prices. Rising Oil prices are a direct result of a rising money supply. It is patently STUPID to believe that rising Oil prices "cause" Inflation. Rising Oil prices might "fuel" rising prices in general, but they are not the "cause" of Inflation, the Federal Reserve is. Inflation is here and it is going to get catastrophically worse before it gets better, and a 20% drop in Oil prices is NOT going to change that in any way shape of form. Go ahead and sell your Gold on the drop in Oil prices. You don't deserve to own it.

What has crude oil got to do with gold prices?
He asked me: “What do higher crude oil prices do to the general price levels in the world?” I said: “Of course, higher crude oil prices fuel inflation, since most of the demand for oil is inelastic.” He further probed: “Is gold a kind of proxy currency?” I said: “Yes. In fact, in the 1900s, many countries in the world had gold standards — gold was used as a medium of exchange.”

Let’s presume that gold was the currency now. How much gold would be required to buy a barrel of crude oil? Or how many barrels of crude oil will be required to buy an ounce of gold? The answer is around 7.3 barrels of crude oil would fetch one ounce of gold. This ratio is known as the ‘gold-oil ratio’.

He continued his questions: “Paper currencies like US dollar tend to lose their purchasing power over the years, why?” I replied: “Simple — due to inflation.” As time passes, paper currencies can’t buy the same amount of oil which you could have bought years ago. And the final words of wisdom came from him: “But gold is different.

It preserves value — better known as a store of value — and that’s the reason why gold is used to hedge inflation.”
He said: “Look at the very long term chart, the average number of barrels required to buy one ounce of gold is around 14.5, which is now at 7.3.”

I nodded in affirmation and said: “That’s because crude oil has moved up sharply from $38 in 1980s to $123 (high of $144), whereas gold has not moved in tandem. It is still trading near $910 per ounce, a little more than the 1980s high of $850 per ounce.” He jumped up and said: “Bingo, now for the gold-oil ratio to reach its long-term average of 14.50, at current prices, either the crude oil price has to move down to $63 or the gold price has to move up to $1,700.”

As I was leaving his office enlightened, I thought with the current uncertain geo-political situation in oil-rich countries such as Iran, Iraq and Nigeria, and with no new discoveries, crude oil seems unlikely to move down to say $63 levels for the gold-oil ratio to reach its long-term average of 14.50. In that case where would gold go?
http://economictimes.indiatimes.com/Features/The_Sunday_ET/Money__You/What_has_crude_oil_got_to_do_with_gold_prices/articleshow/3319957.cms

The sale prices on Gold and Silver won't last forever, I doubt they last the month. Only ignorance stands in the way of higher Gold and Silver prices now. The delusion that has overwhelmed market psychology has unwittingly conspired to offer savvy investors yet another opportunity to load the boat with Silver and Gold and their related mining shares. Gold and Silver are at or near HISTORIC lows in relation to the price of Oil. Take advantage of it NOW!

Now would be a good time to point out the "seasonal" weakness in Oil that tends to develop year in and year out in June and July. June and July Oil prices are seasonally weak as summer demands for gasoline have been met, and demand for heating oil is at it's lowest between June and August. Demand for winter needs begins to pick up in August, and peaks in late October.

See a seasonal chart of Oil here:
http://spectrumcommodities.com/education/commodity/charts/cl.html

A very strong point should be made and considered. On March 18, as the Fed bailed out Bear Stearns, Gold traded at $1013. On that day Oil traded at $104. It seems unlikely that Gold was trading at this level in relation to Oil because of "higher Oil prices" when today Gold is down substantially, and Oil prices are higher even as they have come off recent highs. If Gold didn't follow Oil prices higher then, why is it following them down now? Gold rose over $1000 at that time becasue of severe threats to the financial system. Those threats still exist today and are frankly more severe than they were considered then. Inflation has exploded since March as well. But as long as the public continues to grasp the delusion that Oil prices cause inflation, Gold prices may suffer the consequences and reflect the delusion and denial of the truth about the "soundness" of our financil system.

The Oil bubble has not burst. Not that Oil is in a "bubble" to begin with. Oil is merely taking advantage of it's seasonality to consolidate recent gains. Demand for Oil "globally" is NOT diminishing. It continues to grow. Oil consumption no longer revolves around the demands of the US consumer, but the World consumer. Grasp this fact and ignore the "reasons" the media gives you for the drop in Oil prices. The media exists to shape public opinion and distract you from reality. Take advantage of this opportunity and buy more Gold and Silver.

For a more detailed explanation of the Oil market I suggest reading this recent essay from Adam Hamilton. Adam has a most unique and easy to grasp interpretation of this raging Bull market in Oil. You can find his essay Gaming Oil Corrections by clicking this link: http://www.zealllc.com/2008/gameoil.htm