What Do Gold, Oil and Dollars Have In Common?

The increase in the price of oil may be accountable for the increase in inflation. This increase in inflation has a negative effect on the whole global economy, not to mention the oil-dependent economies such as the US. Transportation, heating, utility, and basically all finished products reflect the high price of oil. The US accounts for only 5% of the world’s population but it consumes about 25% of the world’s fossil fuel – based energy.

The Middle East, Venezuela, Nigeria and Saudi Arabia are areas where tensions have been building up in the course of time and also, they are the areas were the vast majority of the oil reserves are. The side effects if something bad happening in these regions are hard to estimate but it could something far worse than a simple rise of oil-price.

The link between the gold and oil was created due to the fact that the Arab producers wanted to receive gold for the oil they sold. The original concession in Saudi Arabia was made by King Ibn Saud in the year 1933 and he demanded that the payment be made in gold. The use of “promise payment” such as US dollar as a medium of exchange is forbidden by the Islamic law.

In 1975 the OPEC members agreed to sell the oil only for US dollars. The oil, the gold and the commodities started to be priced in dollars from this point forward. When the US ceased the gold convertibility in 1975, the OPEC members had no choice but to change their excess of US dollars and buy gold on the market. This is what made oil and gold prices increase considerably.

As the dollar declines and the demand and supply imbalance increases steadily, the oil price is said to be rising. This can happen even if there are no geopolitical concerns and no terrorist attacks. The price of gold will reach historic peaks when this is going to happen.

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