This is not a chart of gold (in U.S. dollars), nor a chart of oil (in U.S. dollars). This is a chart of oil, in gold…
Since it’s a bit mind boggling, I’ll explain…
The chart plots the ratio:
Gold (price of 1 futures contract)
Oil (price of 1 futures contract)
And it answers the question: “How many units of gold does it cost to buy one unit of oil?”
As you can see, at the beginning of 2009, it took 7.5 units of gold to buy one unit of oil. Then the relationship changed…
It now takes much more gold to buy one unit of oil. At its peak, you would have needed 22 units of gold to buy 1 unit of oil.
With this as a starting point, we can ask: “How has the ‘gold price’ of oil changed over the past three years?”
With the “gold price” of oil now 19.5 units, up from the 2009 “gold price” of only 7.5 units, that means the price of oil has gone up 160%!
That looks pretty inflationary to me. I’d say gold loses its luster as the inflation-fighting “anti-money” when you actually try to use it as money.
If you haven’t done so already read the Survive & Prosper issue on “Why Trading Gold for Oil Doesn’t Make Gold Money“.