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Gold, Oil And The Dollar

An increase in the oil prices can have as a result an increase in inflation. This has a negative impact on the global economy, especially on the oil-dependent economies such as the US. The high price of oil is reflected in every finished product including transportation, heating and utility costs. The US accounts for only 5 % of the world's population but it consumes 25 % of the world's fossil fuel – based energy.

The vast majority of the oil reserves are located in areas where tensions are and have been building up in the course of time: Middle East, Venezuela, Nigeria and Saudi Arabia. If something bad would happen in these regions, the side effects are hard to estimate but it could be something scarier than the simple rise of oil-price.

The link between oil and gold lies in the desire of the Arab producers to receive gold in exchange of their oil. For the original oil concession in Saudi Arabia, back in 1933, King Ibn Saud demanded that the payment be made in gold. Furthermore, the Islamic law forbids the use of a "promise of payment" such as the US dollar, as a medium of exchange.

Nevertheless, in 1975, the OPEC agreed to sell its oil exclusively for US dollars. This is when oil, gold and commodities started to be priced in US dollars. In 1971 the US ceased gold convertibility so the OPEC producers were forced to convert their excess US dollars by purchasing gold on the market. Due to this phenomenon, oil and gold prices increased considerably.

Imagine that the price of oil is said to be rising as the supply and demand imbalance increases steadily and the dollar declines. This could happen even if there are no terrorist attacks or geopolitical concerns at that specific time. When this scenario will actually take place the price of gold will reach historic peaks. So be ready to invest!

Learn how to buy gold in times of recession by professionals.

About the Author

After analyzing global financial markets as an investor, I decided it's time to put a use to the knowledge I have accumulated in the course of time. I believe that gold was, is and always will be the safest way to invest one's money especially in these times of global financial instability. Today gold is used in so many fields besides investment that it would be a shame if people wouldn't become aware of all that it is worth.