Barron's (posted at SmartMoney.com)
By Sandra Ward
4 October 2004
Barron's: What's the relationship between oil and gold?
Turk: There's always been a strong relationship between crude oil and gold. There's a chart of crude oil and gold going back to 1946 in which crude oil is basically unchanged. The oil price, in gold terms, has fluctuated but it is not significantly different from where it was in 1946. In dollar terms, the chart shows the price of crude oil has been going quite high. Although crude oil is a little bit expensive in gold terms at the moment . it is at the high end of the historical range . it is not completely out of line with the historical relationship. What the climbing dollar price of crude oil reflects is inflation in the dollar over the last five or six decades.
Going back to the oil shock of the early 1970s, the reasons why oil prices shot up were as much economic as political. The price of crude oil had been fixed and that was fine when the dollar was still tied to $35 per ounce of gold. But when the dollar was taken off the gold standard in 1971, the price of crude oil remained the same in dollar terms. The oil exporting countries were getting less in real purchasing power so they made a big adjustment to recover what they were losing as a result of the dollar losing value. Oil is cheap at $50 a barrel by any kind of historical analysis. Any supply problem that arises, whether it's a disruption in Venezuela or labor strikes in Nigeria or political fallout in Russia, is bullish for oil. We should be focusing on $60 or more a barrel.