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Are Energy Prices 'Pegged' To Hard Money?

Tyler Durden's picture


Energy prices are soaring (though down a little this week). However, a strange thing has occurred since the lows in 2009 and the lows in 2011 - both indicative of coordinated and massive central-banking largesse - Oil prices in hard-money have been extremely range-bound. In fact, the price of Oil in Gold and Silver has been rather coincidentally stable over this period - we leave it to the reader to consider the global energy-producing nations' implications of a hard-money 'peg' for energy prices - as Central Banks attempt to inflate their way out of trouble.

Oil - priced in Gold (average 0.0675 oz per barrel of oil - range +/-1.5 sigma)


Oil - priced in Silver (average 3 oz per barrel of oil - range +/-1.5 sigma)


Charts: Bloomberg


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Tue, 09/04/2012 - 15:06 | 2761435 JawsMusic
JawsMusic's picture

Gold Bitchez!

Tue, 09/04/2012 - 15:12 | 2761461 Haager
Haager's picture

Usually yes. But anyone should remember: The actual display of "value" is fx-ed, missing any consistency. Only physical contains consistent value.

Tue, 09/04/2012 - 15:21 | 2761490 MillionDollarBonus_
MillionDollarBonus_'s picture

Unfortunately for goldbugs, forward freight agreements are priced in dollars, NOT gold, so goldbugs and silverbugs will have to give up their dreams about becoming kings of the universe. The US dollar will remain the world's number one safe haven choice, despite the hyperventilating rants of nerdy libertarians and lunatic conspiracy theorists.

Tue, 09/04/2012 - 15:26 | 2761502 LawsofPhysics
LawsofPhysics's picture

You are getting weaker.  The BRICs are already dealing with each other, in their own currencies.

Come on, give us somthing we can really laugh at.

Tue, 09/04/2012 - 16:59 | 2761514 Ghordius
Ghordius's picture

Draghi's temper tantrum a la Hank Paulson?

Tue, 09/04/2012 - 18:51 | 2762295 theXman
theXman's picture

I'm both a chart reader and a PM bug. The above charts seem to me that oil will go higher in terms of oz of gold and silver. I also believe that gold and silver prices are going higher, also based on chart reading. In other words, oil price in USD will get a lot higher from here. Today's oil price is a lot closer to bottom than top. I am quite confident that oil will be $200/barrel by 2016. Even $300 is possible at the peak.

Tue, 09/04/2012 - 15:46 | 2761557 Bunga Bunga
Bunga Bunga's picture

Don't worry, Iran will be forced to use Dollars again.

Tue, 09/04/2012 - 16:00 | 2761596 Spastica Rex
Spastica Rex's picture

The only thing getting weaker is the comedy. It's like listening to Henny Youngman tell the same joke over and over, day after day. It's funny maybe the first ten times. After that, not so much.

Tue, 09/04/2012 - 15:37 | 2761531 Dr. Richard Head
Dr. Richard Head's picture

I am going, allegedly, to take your posts and shove them in your ass.  For good measure, I will use some fiat to wipe up.

Tue, 09/04/2012 - 15:44 | 2761547 Bunga Bunga
Bunga Bunga's picture

Troops and drones stand united to force the rest of the world to use worthless paper notes.

Tue, 09/04/2012 - 15:51 | 2761570 ejmoosa
ejmoosa's picture

Unfortunately for you, even a billion dollar bonus won't mean what it used to.


But an ounce of gold or silver will always be an ounce of gold or silver.


Tue, 09/04/2012 - 16:36 | 2761751 ParkAveFlasher
ParkAveFlasher's picture

And Kitco's platinum historical charts just timed out.  Too much traffic.

Tue, 09/04/2012 - 16:02 | 2761602 mick_richfield
mick_richfield's picture

Precious metals people don't want to be Kings of the Universe.

Real money is exactly money that can't be controlled by tyrants.

Tue, 09/04/2012 - 16:13 | 2761627 JohnKozac
JohnKozac's picture

house prices down 36% from the peak.

... USO up over 50%;

...GLD up over 200%;

...SLV up almost 300%.


Those who refuse to hedge with Hard Assets are losing out

Tue, 09/04/2012 - 16:55 | 2761818 KingTut
KingTut's picture

You are not paying attention.

If the Saudis charged 2.5/1000 th of an ounce per barrel, their 100,000,000,000 barrels sold so far would give them the same 8113 tons of gold that the US has.

There are ways to eastablish a private gold standard without the Government having to acknowledge it.

Tue, 09/04/2012 - 18:02 | 2762077 steve from virginia
steve from virginia's picture




In the nothing for something economy, what Saudi gets for its oil is empty promises.


The oil is turned into useless gases in the atmosphere, fair trade!


Let them trade gold for oil, nobody will give up their gold. Nobody needs to drive (Saudia won't sell any oil.)


An excess of credit flowing toward oil and it (oil) becomes unaffordable, how much is too much credit? Whatever that amount is it becomes less with the passage of time (because maturing debt must by retired by taking on more new debt).


When currency = oil, there is the currency shortage and nobody gives it up either (Saudia sells no oil). No matter where you turn Saudia sells no oil and that means nobody uses it either.


Conserve energy = buy gold.



Wed, 09/05/2012 - 02:58 | 2763543 BeetleBailey
BeetleBailey's picture

LOL....MDoucheB...what a total cunt you truly are.

Tue, 09/04/2012 - 15:30 | 2761511 Silver Bug
Silver Bug's picture

Oil and gold most definitely are. They have always historically been.

Tue, 09/04/2012 - 17:43 | 2762013 Stuck on Zero
Stuck on Zero's picture

Peak oil.  Peak gold.


Tue, 09/04/2012 - 15:06 | 2761436 Mr. Mandelbrot
Mr. Mandelbrot's picture

Yes . . .

Tue, 09/04/2012 - 15:06 | 2761437 ejmoosa
ejmoosa's picture

That's the way it's supposed to be. 

Why should anyone settle for cheap paper if they do not have to?


Tue, 09/04/2012 - 15:09 | 2761447 LawsofPhysics
LawsofPhysics's picture

Sort of, but OIL is a reserve currency by itself (if you have oil, you can do lots of things to create wealth), so one might say hard money is tied to energy sources instead.  Oh yeah, bitchez.

Tue, 09/04/2012 - 15:30 | 2761508 Dr. Acula
Dr. Acula's picture

No. Oil is not a currency. I can't walk down to the supermarket and exchange a barrel of oil for groceries.

It can be a store of wealth, though. As can tubes of dentrifice.



Tue, 09/04/2012 - 15:55 | 2761579 LawsofPhysics
LawsofPhysics's picture

"I can't walk down to the supermarket and exchange a barrel of oil for groceries."


So fucking what, without any oil you wouldn't get to the fucking market or even have the selection you do at the market.  Sorry, did you have a fucking point?  I have traded diesel with folks next to me already for things, so you are quite wrong on that point as well.  

Tue, 09/04/2012 - 17:56 | 2762066 Dr. Acula
Dr. Acula's picture

>Sorry, did you have a fucking point?  I have traded diesel with folks next to me already for things, so you are quite wrong on that point as well.  

Then it sounds like diesel is a barter good. Not a currency.

"LawsofPhysics", I suggest sticking to physics. Economics does not appear to be your forte.


Tue, 09/04/2012 - 15:59 | 2761588 laozi
laozi's picture

It can be used inbetween nations to settle deals. Wtf... Didn't you see Mad Max?

Tue, 09/04/2012 - 17:45 | 2762018 Stuck on Zero
Stuck on Zero's picture

I thought water was the most precious commodity in Mad Max.

Tue, 09/04/2012 - 15:10 | 2761450 The worst trader
The worst trader's picture

Who turned on the BTFD switch?

Tue, 09/04/2012 - 15:12 | 2761460 101 years and c...
101 years and counting's picture

when was it ever turned off?

Tue, 09/04/2012 - 15:13 | 2761464 Conman
Conman's picture

It was never turned off..

Tue, 09/04/2012 - 15:13 | 2761465 fonzannoon
fonzannoon's picture

No one turned it off. All the bullshit about a sept selloff was just another creation by cnbc so we could "climb another wall of worry" and they can celebrate the power of the markets to overcome adversity as they play rock music and sound bytes by asshole "economists".

Tue, 09/04/2012 - 16:23 | 2761679 ParkAveFlasher
ParkAveFlasher's picture


This Labor Day I sat at the picnic table with my father (67 years old, truckdriver, can not retire).  He has a mortgage with Hudson City (now M&T) and my mother exclaimed that he can't get his money out of his Fidelity account. Good times.

One of his other sons is moving in with his three kids, because they just took out a loan to add a third bedroom and need a place while the "renovation" takes place.  The "renovation" will cost approx. 40% of original price of the house.  They can not compete in their market otherwise, so they are risking that just to get a sale. Good times. 

One of his other sons traded tech stocks for UBS on the floor of the exchange until 2007.  His wife has recently gone back to work as a school teacher, because their property taxes are so high that at the rate they pay them, they are losing the equity in their homes and must have either more savings or higher pension.  Good times.

They all ask me if I'm back on drugs when I start talking about precious metals.  I seem to be the only one having a crisis of confidence.

Tue, 09/04/2012 - 16:25 | 2761688 Don Keot
Don Keot's picture

Fox Business is also fitting that description.  F_ _king cheer leaders.

Tue, 09/04/2012 - 15:13 | 2761468 Haager
Haager's picture

Sorry, I did. Thought it was the Burn-That-Flat-Down switch.

Tue, 09/04/2012 - 15:11 | 2761459 101 years and c...
101 years and counting's picture

when its all priced in fiat, it does appear that way.  the less your fiat is worth, the less real things you can purchase.

Tue, 09/04/2012 - 15:12 | 2761462 SaveTheGreenback
SaveTheGreenback's picture

The dollar should be pegged to a basket of currencies...


Oil (energy), gold, and silver should be in the basket...


There isn't enough gold or silver to back $16 trillion of debt at today's price....but, there is probably enough oil and natural gas...



Tue, 09/04/2012 - 15:14 | 2761471 fonzannoon
fonzannoon's picture

At todays price? No, At their correct price....yes.

Tue, 09/04/2012 - 15:19 | 2761480 SaveTheGreenback
SaveTheGreenback's picture

At the correct price, we all become serfs (unless they let us keep our metal)   :)

Tue, 09/04/2012 - 16:26 | 2761696 ParkAveFlasher
ParkAveFlasher's picture

They can come and try to get it. 

At the correct price, we all become enlightened.

Tue, 09/04/2012 - 15:20 | 2761485 LawsofPhysics
LawsofPhysics's picture

Right, now about the 700+ trillion dollar CDS market....

Tue, 09/04/2012 - 15:36 | 2761530 Ghordius
Ghordius's picture

it's a fantasy. a trick. a garbled mass of contracts to be banned. a price cartel hidden in plain view. a scam. the supreme ponzi

Tue, 09/04/2012 - 15:50 | 2761568 LawsofPhysics
LawsofPhysics's picture

Thanks captain obvious, do you have any information I can actually trade with?

My "contrarian" prediction is that the banks all get to gether and "call it even".  wiping it all out, with no consequence (to them), then the printing and inflation really gets started in earnest.

Tue, 09/04/2012 - 17:06 | 2761858 Ghordius
Ghordius's picture

what part of "it's over" and "the last forty years were special" did you not understand?

you won't make the same sort of money by "trading" anymore. except if you have immense databases that give you the shape of how the others are positioned (the above mentioned trillions). and even those five banks will struggle

and you can forget about "shorts". go long and hold on what you think will be fine in ten, fifteen years. keep liquidity ready. that's it

your prediction might work on sovereigns or on banks being forced by sovereigns. the banks themselves? they believe in their own propaganda

Tue, 09/04/2012 - 15:33 | 2761521 PiratePawpaw
PiratePawpaw's picture

"There isn't enough gold or silver to back $16 trillion of debt"

I have heard this arguement before, and it makes no sense. You divide the ammount of fiat backed by the ammount of STUFF you are backing it with and that is the value of STUFF in fiat terms .You could back all the worlds currencies with one special magic paperclip if you wanted to. It would just be a REEEEEEALLY expensive paperclip. In terms of fiat.

Tue, 09/04/2012 - 15:55 | 2761582 SaveTheGreenback
SaveTheGreenback's picture

Yes, except I said at today's price

huge difference....we all know the price of gold and silver is depressed severely...


Tue, 09/04/2012 - 16:27 | 2761707 ParkAveFlasher
ParkAveFlasher's picture

And watch platinum.  Up $20 today.

Tue, 09/04/2012 - 23:27 | 2763190 StychoKiller
StychoKiller's picture

BDI went below 700 today.

Tue, 09/04/2012 - 15:46 | 2761551 Vagabond
Vagabond's picture

The other posters handled your idiotic gold/silver claim.  Now about oil and natural gas... What kind of an idiot would use a flamable commodity that gets "used up" as currency?  Please review Aristotle's #1 quality that makes for good money, and put in some thought to your next "save the world" idea.

Tue, 09/04/2012 - 16:15 | 2761637 mick_richfield
mick_richfield's picture

I burn money all the time, man.

Tue, 09/04/2012 - 16:20 | 2761644 SaveTheGreenback
SaveTheGreenback's picture

Yeah, using the world's most valuable and precious commodity as a currency-base is a terrible idea.  Keep reading Aristotle.  He was a smart guy who, I'm sure, contemplated the future of human technology and transport: autos, gasoline, and airplanes and the fuel they require.

Tue, 09/04/2012 - 16:13 | 2761629 mick_richfield
mick_richfield's picture

I think you just said "There isn't enough denominator for that large of a numerator."

I'm not a math guy, but I don't remember any limitations of that sort when you do division, even if it's dollars divided by ounces.


Wed, 09/05/2012 - 07:11 | 2763764 deez nutz
deez nutz's picture

There isn't enough gold or silver to back $16 trillion of debt at today's price....but, there is probably enough oil and natural gas...

looking at it backwards there should never have been 16 trillion in debt.  Now to support that debt we have to give every college kid a credit card, everyone qualifies for a new car, student loans approaching 1 trillion, FHA covering 30% of the housing market, etc ... 

We just keep creating debt to cover what already went bad.  Would a gold standard allowed us to throw so much good money after bad money? 

Tue, 09/04/2012 - 15:28 | 2761470 Ghordius
Ghordius's picture

Hard Money and Soft Money are in a shifting continuum, from Super-Hard to Super-Soft. This was visible in the classic times when there was a SilverZone and a GoldZone with overlaps.

Interestingly, farmer usually preferred to be in the "softer" SilverZone instead of the "harder" GoldZone. yes, even in the US.

the rally cry in 1896 was "you shall not crucify mankind upon a cross of gold"

Note that this speech was considered "one of the most powerful political addresses in American history"

Note how much interest the public had in monetary matters, 1896

Note how they were asking that coins of silver would have to be circulated - with less intrinsic/market value than the denomination

Note how the people of that time hated the Rothschids for their grip on the world gold and debt markets

Tue, 09/04/2012 - 15:14 | 2761473 Donnie Duvanie
Donnie Duvanie's picture

Ok, From now on.. Pay me OIL Bitchez!!!

Tue, 09/04/2012 - 15:16 | 2761474 Flakmeister
Flakmeister's picture

Well, knock me over with a feather....

Tue, 09/04/2012 - 15:17 | 2761476 asteroids
asteroids's picture

Oil is now a currency, like gold and silver. It has all the attributes. Think about that for a minute. It takes a fair amount of energy to dig up and process gold and silver. Hardly any at all for light sweet crude. I can burn that in any good diesel engine. Hmmm. No wonder speculators rent tankers and store oil in them.

Tue, 09/04/2012 - 15:19 | 2761483 Flakmeister
Flakmeister's picture

Really?  Have you computed the EROEI on the Bakken and Alberta tar sands?

Tue, 09/04/2012 - 15:57 | 2761573 Dr. Acula
Dr. Acula's picture

EROEI is of no direct relevance to economics.

Energy by itself is intrinsically worthless. Only the human mind can bestow value upon it. And the value assigned depends on the person's subjective opinion and on the form of the energy, not just the quantity of energy.

I purchase a hamburger because I want to enjoy a pleasurable meal. Not because I want to consume 2 megajoules worth of energy. The teenagers at McDonalds do not sell it because they find the EROEI to be favorable. The magnitude of a quantity of energy does not directly inform human action.

Because energy is conserved, from a physics point of view, the EROEI of every process must be unity, making the concept a nullity. In practice, EROEI is an ill-defined, non-scientific contrivance that is a part of neither physics nor of economics. Do yourself a favor and rid your mind of this absurdity.


Tue, 09/04/2012 - 16:02 | 2761601 Spastica Rex
Spastica Rex's picture


Tue, 09/04/2012 - 16:04 | 2761605 Flakmeister
Flakmeister's picture

Your worship of Praxeology assumes that a hamburger is available...

It is also clear that you do not have a clue what EROEI is based on your statement about the conservation of energy....

Tue, 09/04/2012 - 16:20 | 2761659 Spastica Rex
Spastica Rex's picture

Losers waste their time on the judicious study of discernible reality. Winners make their own reality.

Not really, but someone really important once said something like that.

Tue, 09/04/2012 - 16:43 | 2761772 Dr. Acula
Dr. Acula's picture

I do not "worship" praxeology, whatever that means. But it's clear you adhere to it. You wouldn't post here if it weren't for felt uneasiness - if you didn't ex ante prefer the state of you having posted over the previous state of you not having posted.

An entrepeneur who concerns himself with EROEI, rather than financial ROI, is set up for failure. Even if you secure government-stolen funding for your "green energy" products, as did Solyndra, it may not be enough to remain a going concern.

>you do not have a clue what EROEI is based on your statement about the conservation of energy....

I will go further and say the EROEI can be any value you please and not only unity. It depends entirely on what you kinds of energy you define as "useful". EROEI is obviously subjective. And because there is not even weighting coefficients to account for the utility of the various kinds of energy involved, it is ridiculously crude.

Tue, 09/04/2012 - 17:00 | 2761836 Flakmeister
Flakmeister's picture

You just keep digging an ever deeper hole with each post...

I am sorry, energy is not subjective. The basis for your world view, also held by other naive devotees of von Mises (no reflection on the old guy, only on his acolytes), is that energy is equivalent to Manna....

It is not surprising that many of those acolytes believe in a continuous abiotic origin of oil, you know, it just "fits" better with their philosophy in that it doesn't force them to do any critical thinking.... 

It is the leverage of excess energy that becomes capital, not the other way around.... Thermodynamics is a science, economics is an ideology.... learn the difference....

BTW, you got to lay off the strawmen....

As for EROEI, here is a gedanken....

Imagine a world where coal is the only energy source and there is only one coal mine. The seam heads off under the ocean floor and the mine must be pumped out continuously. What happens to society when more and more of the mine output is required to power the pumps leaving less and less of a surplus...

Tue, 09/04/2012 - 17:24 | 2761887 Dr. Acula
Dr. Acula's picture

>I am sorry, energy is not subjective.

Its value is subjective. But thanks for putting words in my mouth.

>The basis for your world that energy is equivalent to Manna....

More nonsense. Why not refute what I actually say?

>It is not surprising that many of those acolytes believe in a continuous abiotic origin of oil

Nothing to do with me or this discussion. More red herrings.

>Imagine a world where coal is the only energy source and there is only one coal mine. The seam heads off under the ocean floor and the mine must be pumped out continuously. What happens to society when more and more of the mine output is required to power the pumps leaving less and less of a surplus...

Of course, the price will rise inexorably. Due to demand elasticity, processes will be shut down. The structure of production will collapse. Everyone will die.

But what does this have to do with EROEI? I did not use an EROEI ratio anywhere in my line of thought.

Why not try formulating a scenario where there are two sources of energy and one has a good EROEI and the other has a bad EROEI. Will everyone die because they don't listen to your sage advice on EROEI and they stubbornly choose to keep using the "bad" source of energy even as the price keeps rising? Or is it more likely that you invest in the "good" EROEI process and lose your shirt because it is not economical, and then the entrepeneurs who outsmarted you by going for the "bad" EROEI process first finally invest in the "good" EROEI process and continue creating wealth?


Tue, 09/04/2012 - 17:39 | 2761995 Flakmeister
Flakmeister's picture

Can I have a balsamic vinagrette with the word salad?

Tue, 09/04/2012 - 17:51 | 2762032 Dr. Acula
Dr. Acula's picture

Attack my writing style. Make funny posts and ad hominem attacks. Do anything, as long as you avoid the issue at hand. 


Tue, 09/04/2012 - 18:20 | 2762138 Flakmeister
Flakmeister's picture

I am sorry, but you fail to grasp the most basic concepts involving energy....

My 15 yo son has a better understanding of the role of energy in the economy than you do....

Tue, 09/04/2012 - 18:31 | 2762151 Dr. Acula
Dr. Acula's picture

It is a heterogenous good and it's a factor of production. Whoopde-do.


Tue, 09/04/2012 - 18:34 | 2762213 Flakmeister
Flakmeister's picture

You must be a troll....

I have to learn to ignore them.....

Tue, 09/04/2012 - 16:24 | 2761668 css1971
css1971's picture


EROEI is of no direct relevance to economics.

EROEI is inversely proportional to the percentage of the economy dedicated to the finding and extraction of energy. So... Yes it does.

All the happy clappy things we do are directly related to the surplus energy we have the use of over and above that required to obtain more.

EROEI of every process must be unity

You're conflating use with extraction.

Tue, 09/04/2012 - 17:29 | 2761956 Dr. Acula
Dr. Acula's picture

"EROEI is inversely proportional to the percentage of the economy dedicated to the finding and extraction of energy"

Your statement is not even qualitatively true: another possibility is that the "percentage of the economy" remains the same when EROEI is increased and the returned energy is simply wasted in more extravagant ways.


Tue, 09/04/2012 - 18:07 | 2762100 css1971
css1971's picture

Define wasted in terms of economics. It satisfies a want.

If you have so much energy you can affford to waste it, think of all the wants it'll satisfy.

But, if you have to spend 30% of your time... (and the conversion of energy is about energy per unit time; or the rate at which work can be done. ) looking for and extracting more energy then you don't have a lot of time or energy left over for other stuff. I mean, it's definitely existing but could you really call it living? I suspect we'll be back at the foraging through forests for fallen branches type scenario when we get down to 3:1 levels of return.

Tue, 09/04/2012 - 18:20 | 2762141 Dr. Acula
Dr. Acula's picture

>Define wasted in terms of economics. It satisfies a want.

You are quite right; "waste" is just an opinion. For example, people could enjoy using energy to artificially heat their lawns in response to improved energy extraction techniques.


Tue, 09/04/2012 - 18:56 | 2762325 css1971
css1971's picture

If people have so much energy that they can throw it away then there is literally no marginal utility. They can do everything useful they could possibly think of with it and then still use what by definition must be an excess to heat their lawns. The costs at this point would have to be insignificant, which means that literally noone within transmission distance had any more productive use for the energy.

How is that use then waste?

The only way I could see this kind of situation btw is with baseload nuclear where it has to be kept running. We had a situation in the UK where nuclear baseload was put on a cheap tarrif during the night because it had to be running but there was no demand for it. So we ended up with night storage heaters which heated blocks of concrete at 3am and  turned the electricity into heat for use during the day. Highly inefficient, but not wasted. They now have better things to do with it.

Tue, 09/04/2012 - 15:59 | 2761589 css1971
css1971's picture

About EROEI, take a look at what it means.

As EROEI declines we have to fuck up exponentially more of the planet to maintain our lifestyles. So, either we manage decline gracefully as possible, or start using much higher EROEI fuels... Like nuclear.

Tue, 09/04/2012 - 16:23 | 2761681 Flakmeister
Flakmeister's picture

Mordor, here we come! 

Tue, 09/04/2012 - 17:37 | 2761988 Dr. Acula
Dr. Acula's picture

All the photo shows is that the owner of an expanse of land decided they are better off having ugliness plus extracted energy, over beauty.

Meanwhile there are plenty of beautiful places for tourists to go. And the Earth's forests are thriving.

Probably it was an economical decision.


Tue, 09/04/2012 - 17:56 | 2762064 css1971
css1971's picture

You just said EROEI had nothing to do with the economy.

Tue, 09/04/2012 - 18:07 | 2762090 Dr. Acula
Dr. Acula's picture


And FROGFI (flavor returned over grape flavor invested) has nothing to do with the wine industry.

Nor does FR/(GFI)^2 (expressed in inverse flaves) or other contrived quantities. These subjective quantities are effects, not causes.


Tue, 09/04/2012 - 18:20 | 2762142 Flakmeister
Flakmeister's picture

Are you in denial or is it a flare up of DK?

Tue, 09/04/2012 - 18:23 | 2762159 css1971
css1971's picture

If you have a source of energy which returns lots of energy for little input and you also have a source of energy which returns bugger all for lots of input... As an economising man, which do you use?

It is an economical decision not a subjective one. Energy is not subjective, it can be measured accurately, precisely, repeatably and differing energy sources can be directly compared. We aren't using tar sands on a whim. We're using them because everything better has already been consumed.

Tue, 09/04/2012 - 18:58 | 2762252 Dr. Acula
Dr. Acula's picture

>If you have a source of energy which returns lots of energy for little input and you also have a source of energy which returns bugger all for lots of input... As an economising man, which do you use?

The most profitable one, of course. The decision involves a calculation in terms of $ or troy ounces, not Joules.

>Energy is not subjective

Actually, energy is subjective in the sense that the quantity known as energy-momentum transforms as a tensor and its components are not the same for all observers :)

Of course, what's relevant here is that the value of energy is subjective. You guys seem to jump straight from Joules into value. You neglect the human aspect of economics, which is to say, all of economics. EROEI tells us little. The EROEI of extracting energy from a rotating black hole could be unlimited. But it's more practical to burn your own dung.

I doubt it, but if our energy sources are to be depleted and human ingenuity is doomed to fail, then civilization will definitely collapse. Misguided EROEI calculations and malinvestments in Solyndra will bring about this outcome more rapidly.


Tue, 09/04/2012 - 19:04 | 2762361 Flakmeister
Flakmeister's picture

You are the one fixated on "value"....

The rest of use understand that it is Joules, BTU, ergs, whatever unit you prefer, that matters....

Thermodynamics don't care jack about ideology....

Tue, 09/04/2012 - 19:12 | 2762385 Dr. Acula
Dr. Acula's picture

>You are the one fixated on "value"....The rest of use understand that it is Joules, BTU, ergs, whatever unit you prefer, that matters....

So I assume you will be eating a ball of lard tonight. Because it contains a greater quantity of joules than do steak and potatoes. It will also save transportation energy if the ball of lard is purchased locally.

By working together, we can help prevent the heat death of the universe.

>Thermodynamics don't care jack about ideology....

Correct. It cannot care about anything. It has no mind.


Tue, 09/04/2012 - 19:37 | 2762509 css1971
css1971's picture

Not really.

EROEI tells you the relative energy input cost, which is proportional to the economic cost. Compare tar sands against Saudi oil. Tar sands requires huge energy input to boil the sand, huge pits dug into the ground, massive machines to haul the stuff for processing, turn the countryside into a moonscape, miserable EROEI and is only economic at $70 or above, some Saudi fields are a hole in the ground which can still produce economically at $20 and with a phenominal EROEI.

The use value of the energy itself doesn't change depending on the source of the energy, they're not related, only the cost of the energy changes and therefore it's marginal utility. Some of those costs may well be externalities which are undesirable, like the tar sands. The general assumption being most people would prefer cheaper energy because it'll allow more uses, satisfy more wants.

The point of EROEI being an attempt to rank different energy sources for comparison. I'm not saying it's perfect by any means but if you have orders of magnitude difference between energy sources then the most useful one is likely to have the biggest number and any number approaching 1 a complete waste of time. That would seem to be highly useful to me.

Without a way to extract energy from a black hole, there's no way to measure EROEI. It requires that you're already doing it so you have examples of inputs. For energy, it's pretty much convertable from one form to another through however many processing stages so I really don't get your subjective value of energy. I can turn tar sands into propane. I can turn natural gas into propane. I can turn nuclear power into propane. For example. It's just engineering and cost and demand.

Tue, 09/04/2012 - 15:23 | 2761494 LawsofPhysics
LawsofPhysics's picture

"Hardly any at all for light sweet crude. "

Really, what are the BTUs that have to be put into discovering, getting to, pumping and delivering a barrel of oil compared to the BTUs you get out again?

Details matter.  I spent a day panning once and recovered almost half an ounce of gold that cost me the energy in a couple sandwiches.  What sort of effort (energy) might I have to put forth to recover a barrel of oil again?


Tue, 09/04/2012 - 15:30 | 2761509 NewWorldOrange
NewWorldOrange's picture

A half-ounce in one day? PANNING? Where? Please, I won't tell anyone else, and will give you a percentage and I'll be using a dredge and sluice box. Cha-ching!

Tue, 09/04/2012 - 15:32 | 2761518 LawsofPhysics
LawsofPhysics's picture

technically is was with an 18-HP pump and 10 foot sluice box, so I guess I need to figure the couple of gallons of gasoline in there as well.  When I retire, I am going back, period.

Tue, 09/04/2012 - 16:34 | 2761741 ParkAveFlasher
ParkAveFlasher's picture

Are you oversimplifying the process a little?  As a teenager I three times banged a single cocktail waitress 10 years my senior, that doesn't mean I then and there had the power to subjugate all female libido's to my massive mojo.

You got lucky.  You know you got lucky.  If you didn't know you got lucky, you'd be there now, doing it.

Oil burns, btw.  That's not a good quality in a currency that you need to physically store. So although it might store labor, it doesn't do it well.

gold stores hot, it stores cold, it doesn't leak or disperse, or stink, and it certainly doesn't burn.  it just sits there. 

Tue, 09/04/2012 - 16:52 | 2761810 LawsofPhysics
LawsofPhysics's picture

"it just sits there."

Yes, just like you will if you have no oil or anyone to trade with.  Sorry, did you have a point?  Never denied that gold wasn't a better store of value, try to stay focused.  If you control the source of oil, you actually control what people have the ability to do.  People who can't actually do anything are irrelevant. Wake up, this is all about power and control, period.

Wed, 09/05/2012 - 10:42 | 2764356 bharat
bharat's picture

I agree. Seems like the oil currency (i.e. dollar) is the one that controls all economies. People here are treating gold like a religion. It is not. You have to adapt to the circumstances. Right now, the world economy looks to be entering a deflationary phase with destruction of actual demand. It is negative in the near term for gold. I love gold though.

Thu, 09/06/2012 - 15:22 | 2769150 tip e. canoe
tip e. canoe's picture

and why has gold been treated like a religion for so long across so many cultures?  what is its power over human consciousness?

Tue, 09/04/2012 - 15:41 | 2761537 savagegoose
savagegoose's picture

heheehe abd yu would need about 8 barrels to match that 1/2 oz gold.

Tue, 09/04/2012 - 15:18 | 2761478 Inthemix96
Inthemix96's picture

Mr bernankies head should be removed from his shoulders.

The devestation he is about to unleash deserves no less.  And all of wall street and congress as well.

Bastards, each and every last one.  If we are going to suffer, they should first.  At the hands of a steaming, riled, and pissed right off mob.

They dserve no less.

Tue, 09/04/2012 - 15:42 | 2761539 Dr. Sandi
Dr. Sandi's picture


Mr bernankies head should be removed from his shoulders.

No, it should be removed from his ass.

Tue, 09/04/2012 - 16:20 | 2761663 mick_richfield
mick_richfield's picture

The people whose names you know

are not the people who wield power.

Tue, 09/04/2012 - 18:02 | 2762087 Dr. Sandi
Dr. Sandi's picture

That is why truly informed people fear me.

Tue, 09/04/2012 - 15:19 | 2761484 Conax
Conax's picture

Our sanctions against Iran got them to accept gold (oh, twist my arm) for their oil.  The peg is there, now.

Tue, 09/04/2012 - 15:26 | 2761501 NewWorldOrange
NewWorldOrange's picture

There's a lot of truth in that. The process of nations taking gold for _________ (insert real asset) has only just begun. Pretty soon everything will be priced in, and in many cases directly pegged to, gold, silver, oil, and certain other hard assets. Those who are holding those assets will fair nicely, if they're able to fight off the looters, bandits, thieves, miscreants, and other forms of government employees and contractors.

Tue, 09/04/2012 - 15:29 | 2761507 LawsofPhysics
LawsofPhysics's picture

This is old news and the implicit promise, made by the central bankers has always been that they can find enough people in the lands they control who will be quite willing to die to defend that peg.  Essentially the real reason the dollar stands is because the U.S. military stands behind it...  for now.

Tue, 09/04/2012 - 15:19 | 2761486 Xibalba
Xibalba's picture

I doubt Bukkake Bernanke gives a fuck.

Tue, 09/04/2012 - 15:43 | 2761543 Dr. Sandi
Dr. Sandi's picture

He's been that way since he was a little squirt.

Tue, 09/04/2012 - 15:20 | 2761487 pismo10
pismo10's picture

1.5 sigma is pretty wide, that would encompass most movement regardless.

Tue, 09/04/2012 - 15:47 | 2761555 HardAssets
HardAssets's picture

Exactly, the price ratio chart is all over the place.


Tue, 09/04/2012 - 15:21 | 2761491 Flakmeister
Flakmeister's picture

Further to an earlier thread,

it is no mystery that the wheels started coming off the bus when the US had to basically default on paying for oil imports in gold back in August of 1971...

Tue, 09/04/2012 - 15:51 | 2761571 css1971
css1971's picture

Go to your room. No more moon landings for you.

Tue, 09/04/2012 - 16:01 | 2761598 Flakmeister
Flakmeister's picture

Beg pardon?

Tue, 09/04/2012 - 16:38 | 2761760 css1971
css1971's picture

It's really not a coincidence at all that the ending of the apollo programme coincided approximately with the peak of US oil production and with the closing of the gold window.


Tue, 09/04/2012 - 17:01 | 2761841 Flakmeister
Flakmeister's picture

That and the fact that moon really ain't that interesting given the expense....

Tue, 09/04/2012 - 17:51 | 2762044 css1971
css1971's picture

Well exactly. Marginal utility.

Point being lots of cheap cheap energy means we don't have to make that particular choice. Why not go to the moon too? Set up a couple of bases there, a hotel. Jump off into the rest of the solar system. Mars.

However. Not happening. Should I spend 100 billion going to Mars or going to war with Iraq and taking their energy supplies? Obviously the latter. The utility is higher. The visionary Sci fi stuff, mars, interplanetary travel are all totally dependent on fuck off high EROEIs. Otherwise we're simply not doing it.

We need cheap energy to go to the stars, and the only thing I'm aware of which even has the theoretical potential to give the kind of return required so that we don't even have to ask the question "should I do this or that", instead of "lets do both", are breeder reactors. Probably thorium based because it's more plentiful. Everything else would just be wanking.


Tue, 09/04/2012 - 18:25 | 2762171 Flakmeister
Flakmeister's picture

Shhh! Don't give the cornucopians nightmares!

BTW, you are inching towards the solution of the Fermi Paradox....

Tue, 09/04/2012 - 15:22 | 2761493 NEOSERF
NEOSERF's picture

Totalitarianism Central Bankism bitchez! 

Tue, 09/04/2012 - 15:28 | 2761504 khakuda
khakuda's picture

Not surprising really.  One would think that oil, barring a supply shock like the one that hit natural gas, would hold up as well as gold or any other hard, non-printable asset.  Everything is rising when priced in depreciating fiat, even stocks.  As long as supply of the asset doesn't rise and there is reasonalble demand, prices should rise as fiat depreciates.

Oil analysts continue to value oil in terms of supply and demand, thinking it is overpriced, forgetting that the fiat printing press never stops running these days.

Tue, 09/04/2012 - 15:30 | 2761512 LawsofPhysics
LawsofPhysics's picture

yes, also ignoring the exponential growth in total debt outstanding.

Tue, 09/04/2012 - 16:01 | 2761600 Dr. Acula
Dr. Acula's picture

>Everything is rising when priced in depreciating fiat

Not everything. Consider, for example, computer components. A 100 GB hard drive has probably gone down in price by 100x in a few years.

Some goods are going up while others are going down. That's why Austrian economists stick with the original definition of inflation: an increase in the money supply.


Tue, 09/04/2012 - 16:03 | 2761606 LawsofPhysics
LawsofPhysics's picture

Yes, looks something like this;


Tue, 09/04/2012 - 16:14 | 2761634 khakuda
khakuda's picture

As noted in a later sentence, I was specifically referring to things of limited supply.  I've been buying grapes for $.99 a pound as well as $.99 2 liter bottles of soda for 30 years, too.  Gold and oil are finite resources and oil gets burned, unlike gold.

Tue, 09/04/2012 - 16:21 | 2761665 Dr. Acula
Dr. Acula's picture

>I was specifically referring to things of limited supply.

I'm guessing 100 GB hard drives, at least the 3.5" ones I'm familiar with, aren't being manufactured any more. The supply is not only limited but it is probably shrinking.

Certainly most goods are going up in price, but not all.


Tue, 09/04/2012 - 16:26 | 2761700 khakuda
khakuda's picture

True, not all goods are going up in price.  As I said in the original post, if there is limited supply AND reasonable demand, prices are likely rising.  If, as you suggested, 100gb hard drives aren't in demand (as they aren't), then their prices would be falling as they are.

Tue, 09/04/2012 - 15:34 | 2761510 ParkAveFlasher
ParkAveFlasher's picture

Gold/oil relationship?  Here I was thinking that no one read my comments.

No need to up arrow!  I read ZH for my own amusement [edit], information, and deep commentary from many downright honest-to-goodness worthwhile-read contributors.

But really, I'd love to see oil priced in various key currencies since 19th century. 

These price analyses are difficult to hang your hat on, who knows what goes into a bill of materials in these huge international exchanges or when contracts are settled underneath what terms.  but still, there is a clear relationship between PMs and energy, thus TPTB very solid workings to channel and control pricing.

Tue, 09/04/2012 - 17:18 | 2761907 Ghordius
Ghordius's picture

oil priced in various key currencies since the 19th century does not make sense. it was a marginal, nearly useless commodity.

If you want to get a grip on what was important in the 19th, you have to use coal and iron.

And the big sport was to see which country produced and consumed more of them.

Tue, 09/04/2012 - 15:37 | 2761526 Bam_Man
Bam_Man's picture

It is only a matter of time before energy producers refuse to accept government issued fiat currency for their oil and gas. The phenomenon mentioned in this article is a clear indication that the world is already headed in that direction. Settlement done in Gold only.

US and Israeli military hegemony may keep the petro-dollar (and its derivatives) alive for a while longer, but the writing is on the wall - and it gets clearer and bolder with each additional round of QE.

Tue, 09/04/2012 - 15:44 | 2761549 dick cheneys ghost
dick cheneys ghost's picture

Thank You.


It will hurt in the beginning, but in the long run it will be the best thing that can/could happen to USA.

Tue, 09/04/2012 - 16:21 | 2761662 Conax
Conax's picture

Since energy=modern life then it is just too precious to swap for discount coupons.  We Americans might have to come off some of our own pent-up crude oil, to keep some gold for ourselves.

Tue, 09/04/2012 - 15:37 | 2761529 marketblip
marketblip's picture

I don't mean to be alarmist here but has anyone checked the Facebook price recently.

Could this be the reason?


Tue, 09/04/2012 - 15:49 | 2761566 css1971
css1971's picture


Every time I want a laugh.

Tue, 09/04/2012 - 16:03 | 2761607 Toolshed
Toolshed's picture

Nice try at pimping your site. Sadly, only the first two featured articles are current. The rest are months, or more (some MUCH more), in age. That is what we like to call useless . A word of advice........keep your day job.


Tue, 09/04/2012 - 15:46 | 2761552 Dr. Sandi
Dr. Sandi's picture

Energy is the lever by which all human action is multiplied. Human action is the ONLY source of wealth.

It only makes sense that the most fungible stuff, oil, should be tracking the hard currency, true marker for our wealth. But it's good to see charts that say the same thing.

All is well in PM Land today.

Tue, 09/04/2012 - 16:15 | 2761626 Dr. Acula
Dr. Acula's picture

>Energy is the lever by which all human action is multiplied.

A meaningless platitude.

>It only makes sense that the most fungible stuff, oil

Why is it "most fungible", or even notably fungible? Maybe you meant "most liquid", but then you'd be wrong since currency is by definition more liquid.

>should be tracking the hard currency

There's nothing magical about oil. Tangible goods like clothing also track precious metals, and do so over centuries.


Tue, 09/04/2012 - 16:17 | 2761648 Flakmeister
Flakmeister's picture

Did you forget the meds today?

You are being exceptionally incoherent....

Tue, 09/04/2012 - 16:23 | 2761678 Dr. Acula
Dr. Acula's picture

Which part did you not understand?


Tue, 09/04/2012 - 16:25 | 2761695 Flakmeister
Flakmeister's picture

You clearly do not understand the role of energy in any society, technical or otherwise....

Tue, 09/04/2012 - 16:22 | 2761670 khakuda
khakuda's picture

Are you arguing that oil and clothing are similar in their ability to store value?  You can't possibly believe that.  I don't think clothing prices have tracked precious metals.  Clothing has become way, way cheaper over time with the scale of mass production and machinery.  Oil is a finite resource, unlike clothing.  You can always grow more cotton and wool.

Tue, 09/04/2012 - 16:28 | 2761713 Spastica Rex
Spastica Rex's picture

I think unicorns constantly pee petroleum in caverns deep within the Earth, so... 

Tue, 09/04/2012 - 17:34 | 2761972 Dr. Acula
Dr. Acula's picture

Oil is created by the feces contained in Spastica Rex's posts which decay and collect in pools beneath the ground.


Tue, 09/04/2012 - 17:47 | 2762021 Flakmeister
Flakmeister's picture

SRex must have touched a raw nerve or something...

Do you have any other economic fantasies that you want to share with us? You know, the ones where the magic invisible hand creates net free energy out of nothing?

Tue, 09/04/2012 - 16:59 | 2761829 cxl9
cxl9's picture

I don't think clothing prices have tracked precious metals.

And you would be wrong. Interestingly, the price of a fine suit of men's clothing has cost about 1 oz. of gold for hundreds of years. Seems about right today, too, at $1700.

Tue, 09/04/2012 - 20:03 | 2762575 khakuda
khakuda's picture

Ok, I'll concede that point. It would make sense that a fine garment, however defined by fashion of the day, would cost the same share of wallet, pegged to gold since it inflates with the debasement of currency. A fine garment is likely hand made by a skilled tailor who can command wages that have kept up with inflation. Clothing more broadly mass market, however, is likely cheaper than ever before, affordable by most now as it has run down the industrial mass production and technology cost curve.

Tue, 09/04/2012 - 17:41 | 2761848 Dr. Acula
Dr. Acula's picture

The ratio between fine clothing and gold hasn't changed a lot over the millenia as far as I can tell.

"A length of cloth for a plain wool tunic could cost as little as two or three asses, while an elaborate silk, embroidered with pearls and good threads could cost as much as an aureus."

The latter is a quantity of gold worth about $400. The former is presumably far less. Now, even if I grant you a 100x change in price over 2000 years (which is not at all clear here), it is hardly comparable to a 100x decrease in the value of the US dollar over a mere century. Clothes appear to be a far better store of value than green pieces of paper. The girls I know in particular seem to favor hoarding Coach purses.

Note that I'm not an expert on fashion or antiquity so I'm a bit out of my depth here. It would be very interesting to study it further.

Tue, 09/04/2012 - 19:41 | 2762534 khakuda
khakuda's picture

It is interesting. I agree with you that currency is worthless and would rather have clothes or gold or oil or anything with utility.

Tue, 09/04/2012 - 16:25 | 2761687 Colonel Klink
Colonel Klink's picture

Sounds like he's posting Dr. Unk today.


Got any proof of your assertion?

Tue, 09/04/2012 - 18:22 | 2762153 Dr. Sandi
Dr. Sandi's picture

Energy is the lever by which all human action is multiplied.

Is only meaningless if one doesn't understand the basis of all economics.

Also, it's not actually a platitude since I made it up myself as I wrote it. Anybody who understands the top line of economics could make up a similar "platitude" in their own words as well.

Oil is fungible in the actual meaning of the word. If you don't like the meaning of the word, it's not my lookout.

Hard currency is not magical. Oil is not magical. Hard goods such as clothing are not the backbone of the modern civilization. Oil and her energy sisters provide the leverage for all of our human endeavors. Clothing and a washer/dryer are also nice, but not the basis of civilized life.

The simple fact is inescapable: there is nothing of value created without human effort. Whether mining, planting, harvesting, crafting, repairing, mentoring, delivering or even stealing, all value is the result of some human or a group of humans putting their efforts into its creation. You can like it or hate it, but that's how the world works.

Also, the sun comes up in the east. Not everybody likes this fact, and many aren't even clear on it; but understanding or lack thereof doesn't change how stuff works.

Tue, 09/04/2012 - 19:29 | 2762467 Dr. Acula
Dr. Acula's picture

>Energy is the lever by which all human action is multiplied.

 >Is only meaningless if one doesn't understand the basis of all economics.

Then tell us, what is the basis of economics? And from it, deduce how the quantity of energy is related to the muliplier of human action.

>Anybody who understands the top line of economics could make up a similar "platitude" in their own words as well.

Yes. For example: paprika is the lever by which tasty deviled egg-creating actions are multiplied.

>Oil is fungible in the actual meaning of the word.

Yes, the question is why you said it's the most fungible.

>The simple fact is inescapable: there is nothing of value created without human effort.

What about gold ingots and diamonds created without human effort, and plants and animals that grow without human effort, and lands that are created without human effort?


Tue, 09/04/2012 - 16:27 | 2761706 lasvegaspersona
lasvegaspersona's picture

of you think major producers of this world will accept potentially worthless pieces of paper for the long term?

Gold has likely been in the equation since 8/15/71. The details have probably been hidden so as not to interfere with the plan but I am certain that at least the Saudis, as the swing producer, were coaxed into 'accepting dollars' with a little something yellow on the side.

Can you imagine the King of SA giving his great grand kids nothing but treasuries from a bankrupt nation? No one would go along with that, certainly not a major producer of the world's most important commodity.

Tue, 09/04/2012 - 16:37 | 2761756 onebir
onebir's picture

Energy is a large part of gold miners costs*. And cost increases were apparently a big reason gold miners stock prices suffered so badly until recently.

Since gold and silver are range bound vs oil, they might make a pretty good hedge for gold miners costs; it'd be interesting to see this correlation.

*Judging from the recent tragic industrial disputes, food prices may be becoming a big issue for gold miners labour costs in LDCs though.

Tue, 09/04/2012 - 16:59 | 2761830 n2dark
n2dark's picture

Energy prices are mostly 'pegged' to The Cartel's proclivity to use Herr Gutenberg's free reserves to push prices up in any commodity market where they can seize control. If they would have to take delivery of all the shit they're transacting on paper probably the prices of most commodities would be between 1/3 and 1/4 from where they are right now. Just look at the demand curve over the last years, purchasing power, debt levels and general capacity to serve all that debt and so on and you'll know what's not driving the prices up.
Whoever thinks that all that “printing” or “demand” is responsible for the current prices has no clue about notions like reserves, money and velocity of circulation, money distribution mechanisms, purchasing power fueled demand and so on. Otherwise why do you think that all those monetary cures that have been experimentally used over the last few years have not had a larger impact than a fresh paint job?!

Wed, 09/05/2012 - 09:34 | 2764165 tradewithdave
tradewithdave's picture

So which will it be?  $100 per ounce for silver or $500 per ounce for gold.  Does anyone else find it curious that the 16:1 ratio that historically applied to gold and silver has been co-opted as the new gold to oil "peg" ?

Dave Harrison  

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