Tired of High Gas Prices?

Dave  Grabaskas
Apr 4, 2011 at 8:26 AM

As I'm sure many of you are aware, gas prices have been skyrocketing lately. The common reason given by the media for this rise is the unrest in the Middle East. Obviously, there is some truth to this, but this trend started long before the recent revolutions.

A couple weeks ago, I made a post about how the current stock recovery is not based on fundamentals, but on inflationary pressures. I believe the same mechanisms are at work in the fuel markets. 

A few simple charts will demonstrate my point. Below is a chart of gasoline contracts since mid 2008. As you can see, there was a drastic fall during the 2008 crash, an initial recovery, then a prolonged run-up.  As you can see, this latest increase began in November 2010 (which coincidentally is the month Quantitative Easing 2.0 was announced). 

Gas

Now look at that same chart divided by the price of gold (once again, the magnitude is not what is important, but the percent change).  Even with the recent increase due to the Middle East, gas prices, in terms of gold, are still below their mid 2009 levels. 

gas-gold

This trend continues if you price gasoline in terms of pretty much any other commodity, but I won’t bore you with those charts. 

Below, is the same set of charts, but with oil prices (just to give another perspective). The trends are the same. 

Oil

oil-gold

If prices were simply moving due to supply/demand functions from fear of revolutions, you would think the price of gas/oil would increase in terms of other commodities. While there has been some increase, it does not account for all the run up of late. This increase is being felt across all sectors, from stocks to commodities (as my previous post demonstrated). That is a function of monetary policy, not just revolutions. 

Have you considered that all major non-gold commodities have been increasing due to unrelated supply constraints. Oil from the typical collusion combined with the demand increase coming from the progress resuming in developing countries. Wheat and rice from environmental disasters. Corn being constrained as it is being used for energy. Cotton from the same environmental factors. One could then theorize that the rise in gold is a natural result of the actual increase in price of all other commodities, and once the circumstances subside, prices will fall.

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