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Why Gasoline Price Is Really Rising

Commodities / Gas - Petrol May 17, 2008 - 06:47 PM GMT

By: Investmentscore.com

Commodities In an attempt to force lower gasoline prices we get many email forwards from frustrated consumers trying to organize a short term boycott against “greedy” oil companies. Consumers are clearly aggravated with these high prices, but the strategies for change that they suggest are flawed. This short article is designed to redirect this consumer frustration toward what we believe is the main cause of the problem and to offer a potential solution.


More Currency = A Less Valuable Currency = Higher Prices

1) The cost of gas and the cost of oil are rising, and we believe the main reason for this occurrence is that our nation's currencies are dropping in value.

Example:

Approximate Increase In The Price Of Oil From 2001 to April 2008

US Dollars: Up 305%

Euros: Up, much less, 130%

Canadian Dollars: Up, much less, 170%

Australian Dollars: Up, much less, 135%

The above example shows that the price of oil is going up faster in US dollars than it is in other currencies. This is because the US dollar is dropping in value relative to these currencies. The difference between the increases in the price of oil in various currencies illustrates how the value of the currency, the measuring stick, is just as important to the price of oil as the value of the oil which is being measured. Why is the price of oil rising in all currencies?

2) Most analysts, consumers and investors agree that the US dollar is falling and the Euro is rising. All currencies are measured against the US dollar and generally speaking all major currencies are losing value. We believe that foreign currencies only appear to be rising because they are measured against a falling US dollar. The Euro and the Canadian dollar are both examples of currencies that are continually losing purchasing power, but appear strong, simply because they are measured against the moving US currency.

Example:

World wide it generally takes more currency to purchase “things” such as gas, food, power, housing, electricity, education, insurance, land, metals, lumber, labor and so on, including oil.

In other words, currencies such as the Euro and the Canadian dollar may be rising relative to the US dollar but they are also getting less valuable as they purchase less “things”. This loss of value makes oil more expensive. But why are our currencies losing value?

3) Our currencies have been increasing in quantity which causes them to lose value. If there are more dollars, each individual dollar will become less valuable. As a result the price of “things” that currencies purchase, such as oil and gasoline, will go up. This explanation of a complex topic is short and simple. The main point to remember is that the cost of gas at the pump is a reflection of both the value of oil as well as the value of the currency measuring it.

More Currency = A Less Valuable Currency = Higher Prices

It is our opinion that Governments and Central banks are the reason currencies are being inflated and causing them to lose their purchasing power. We believe that over time consumers will see the purchasing power of their local currencies continue to drop at an increasing rate. It is our opinion that this will become more evident as prices generally rise more quickly than they have in the past.

This article is designed to get people to think about this very complex topic from a different perspective. The first step to dealing with the problem of rising prices is to understand the main cause. From an individual's perspective it would be a difficult battle to get our nations to change their monetary policies, but if your currency is becoming less valuable you may wish to protect your wealth through investment strategies. We believe it may be wise to consider investing in precious metals given the current inflationary environment. You may learn about our philosophies on investing and sign up for our free newsletter at www.investmentscore.com .

If you get an email forward suggesting a short term boycott of gas, you may wish to forward this article. Also, if you find this message helpful in understanding underlying factors affecting oil prices, please forward it to anyone you believe would be interested in reading it.

By Michael Kilback
Investmentscore.com

Investmentscore.com is the home of the Investment Scoring & Timing Newsletter. Through our custom built, Scoring and Timing Charts , we offer a one of a kind perspective on the markets.

Our newsletter service was founded on revolutionary insight yet simple principles. Our contrarian views help us remain focused on locating undervalued assets based on major macro market moves. Instead of comparing a single market to a continuously moving currency, we directly compare multiple major markets to one another. We expect this direct market to market comparison will help us locate the beginning and end of major bull markets and thereby capitalize on the largest, most profitable trades. We pride ourselves on cutting through the "noise" of popular opinion, media hype, investing myths, standard over used analysis tools and other distractions and try to offer a unique, clear perspective for investing.

Disclaimer: No content provided as part of the Investment Score Inc. information constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers, including the staff of Investment Score Inc. or their affiliates will advise you personally concerning the nature, potential, value or suitability or any particular security, portfolio of securities, transaction, investment strategy or other matter.  Investment Score Inc. its officers, directors, employees, affiliates, suppliers, advertisers and agents may or may not own precious metals investments at any given time. To the extent any of the content published as part of the Investment Score Inc. information may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Investment Score Inc. does not claim any of the information provided is complete, absolute and/or exact.  Investment Score Inc. its officers, directors, employees, affiliates, suppliers, advertisers and agents are not qualified investment advisers.   It is recommended investors conduct their own due diligence on any investment including seeking professional advice from a certified investment adviser before entering into any transaction. The performance data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that such calculations are not guaranteed by these sources, the information providers, or any other person or entity, and may not be complete.   From time to time, reference may be made in our information materials to prior articles and opinions we have provided.   These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current.  As markets change continuously, previously provided information and data may not be current and should not be relied upon.

Investmentscore.com Archive

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Comments

Smack MacDougal
18 May 08, 14:33
Truth about Oil Prices. The Hidden Revealed.

Oil and money are commodities, one in the earth -- oil -- and the other made by man -- (paper) money.

Men swap commodities. Some call this swap an exchange. In truth, men swap rights, one right for another right. With oil and money, men swap the right of owning oil for the right of owning money).

The ratio of one commodity (oil) to another (money) expresses a value, which we call a price.

A rise in price means a change in the ratio has happened calculated at one time from being calculated at another time.

Only two ways can achieve a price rise:

[1] the denominator (money) rising quicker than the numerator (oil)

[2] the numerator (oil) falling quicker than the denominator Money)

Each year, a RECORD AMOUNT of oil gets pumped. Thus, the numerator in our ratio of oil to money is rising.

However, since the price (the value) of the ratio is rising, only one cause can be true -- a RISE IN MONEY.

Sellers sell to the highest bidder. When folks have more money bidding for a near fixed amount of oil (slightly growing in amount year-to-year), prices rise.

Those folks whose income of money is flat or falling lose Buying Power. Since most folks have falling income, they cannot buy oil and oil-derived products as before.

Too much money (a commodity) chasing too few goods (other commodities) -- it is an age old story that happens when governments run by politicians and bankers debase the currency.

There isn't a global oil shortage. There's a GLOBAL GLUT of MONEY.

What caused the Global Glut of Money?

As credit (another way of saying debt) grows for bad products that nobody wants, a collapse of trust follows. Deals get broken and folks walk away paying on debt. Yet, the money created for this debt stays in the pockets of some folks.

It is the default on credit (=debt, =capital) that causes problems. This increases money at a rate quicker than credit for good products, good invention.

When credit (debt) defaults rise, the paper money and coins issued go into the pockets of winners. These winners begin to bid up prices on existing things, typically commodities of energy, metals, food.

Why? Simply, these winners cannot find worthy investments to make, which would turn their notes and coins into capital paying a return.


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