“Oil’s rise is mainly dollar’s devaluation, OPEC chief says”

Alex’s Notes: I totally concur that the oil price is directly related to the dollar. Specifically, monetary inflation: See “The True Meaning of Inflation“

and

What Causes Inflation?

When we understand that inflation is caused by adding more money to the money supply, and also realize that devaluation of the dollar is the same thing as inflation, only described in two different perspectives, we can understand fully what is happening in commodity prices.

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Oil’s rise is mainly dollar’s devaluation, OPEC chief says

PARIS (Reuters) - Crude oil prices could rise to as high as $170 per barrel in the coming months but are unlikely to hit $200 and should ease towards the end of the year, OPEC President Chakib Khelil said in an interview on Thursday.

“I forecast prices probably between $150-170 during this summer. That will perhaps ease towards the end of the year,” he told France 24 television, according to a text of the interview released by the station.
The comments came as crude prices neared $135 per barrel, after rising about 40 percent this year.

Khelil said he doubted prices would climb as high as $200.

“I think that the devaluation of the dollar against the euro, if everything goes as I think it will, will be of the order of perhaps 1-2 percent and this will probably generate an $8 rise in the price of oil,” he said.

The head of the Organisation of Petroleum Exporting Countries, said it had been clearly established that speculation was impacting markets.
“It’s not a question, but a certainty. The problem is the extent of that speculation on the market,” he said, adding that the effect of the subprime crisis in the United States had affected oil markets.

Asked what the main factor behind the rise in prices had been, he replied: “I think it’s the devaluation of the dollar.”

“You can see, every time the dollar strengthens, there is a fall in prices,” he said.

Khelil reiterated that OPEC, which represents 13 oil producing countries in Asia, Africa and the Middle East and South America, tried to meet the demands of the market, as its statutes required.

“It’s very difficult now to find a market. If you tell me there is someone to whom we haven’t sold oil and who needs it, I’d see, but right now I put my oil on the market and I don’t find buyers,” Khelil, who is also Algeria’s energy minister said.

Asked whether OPEC could change its stance against increasing supply at its next meeting on September 9, he said: “Yes, of course, we will review the situation of the market, based on demand. If there is real demand on the market, OPEC will take the necessary measures to satisfy that demand.”

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We have heard alot of discussion lately in regards to why the miners could possibly be doing so horribly, when history has shown us that mining stocks should be skyrocketing given the last 8 year bull run in precious metals.

Two words: Naked Shorting

Jim Sinclair has created a movement lately asking to enlist over 200,000 investors, and thousands of mining companies, to put a stop to the criminal activity of Naked Shorting that literally steals money from investors. You can see more information on Jim Sinclairs initiative here.

One of the best detailed audio explanations of how Naked Shorting works, listen to this audio program.

Hopefully when this all starts coming to light, the brokers who have engaged in this criminal activity will be spending a long time in a cold cell with a large room-mate named Bubba who finds ex-stock brokers attractive.

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This headline is a PERFECT EXAMPLE of why the western world is so utterly confused about basic economic principles:

PARIS (Reuters) - Inflation, the curse of the 1970s, is staging a comeback, led by sky-high oil prices. This time, the menace is more genuinely global than three decades ago, and this time much of it is “Made in China”.

Lets dissect this headline for a moment.

First, this amazingly not so smart Reuters Analyst says that inflation is being led by oil prices. This is so mind bogglingly garbage spin that it baffles me every time one of these people says something like this. Its insulting. We are not that stupid, thank you.

Inflation is caused by one thing, and one thing only! Adding more currency to the money supply! This is not rocket science! Oil prices are a symptom of the cause, not the cause itself!

Next we have, “This time, the menace is more genuinely global than three decades ago, and this time much of it is “Made in China”. ”

So if the first red herring doesnt throw you, by calling it a menace and making it some spooky creature that might “flare up”, or “jump out of the closet”, or “ambush you from under your bed”, then maybe they can make the subject even more mysterious and confusing than they did before! And if that doesnt confuse you enough, lets throw Chinese manufacturing in there and blame it on them!

They think you will buy it, hook line in sinker, because they think you feel China stole all your jobs, so its an easy way to get you more irritated and off track!

The problem is one of fiat-currency, and pumping billions into the system, period. Inflation will continue not because of skyrocketing oil (that is so absurd it makes my head hurt), but because we keep creating more money out of thin air to salvage the current wreckage of the banking sector.

The Fed has two options:

1. Let these banks who are being forced to write off billions (soon to be hundreds of billions, just wait and see) in toxic debt exposure actually go insolvent

2. Continue to bail them out at light speed, because if one of them fails we will see cascading defaults in the multi-trillion dollar derivatives markets and the whole house of cards will come crashing down in a pile of credit default dust

The Fed cant allow them to fail, period.

So what will we have? A whole lot more inflation.

Get ready for $9 a gallon gas.

My solution? I buy gold and silver to protect my buying power.

Whats your solution?

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The Gold Market and World Economy

Kenneth J. Gerbino & Company
Posted Jun 19, 2008

Genève and Zurich Speech Notes
June 4-6, 2008
Academe Finance Conference

Keynote Address

• There are three main mega drivers to all investment markets 1) The Commodity Pendulum, 2) Excessive Money and Credit Creation Globally, 3) Progress - Population - Technology.
  .
• Commodity Pendulum has just started. Normally 20-25 years. Uptrend started in 2001. Commodities adjusted for Inflation in real terms must increase 75% to just catch up with the 1960 prices. Much higher prices coming and will trend higher for the long term.
  .
• China and India: Obvious and Huge. Highest U.S. Steel consumption is from building industry. If a 75% downturn in the U.S. (worse than the great Depression of the 30’s) there would still be a shortfall of copper supply due to Chinese demand in 2008 and 2009. Massive demand for raw materials coming for decades from developing countries.
  .
• World Governments cannot fulfill the promises to their citizens. Only way out is printing more money. Very Inflationary. Gold will go much higher.
  .
• No Deflation: This is a PR Line from Central Banks as an excuse to print money. 1987 crash in the U.S stock market saw over $10 trillion in Stock and Bond market losses and there was no deflation or recession. Financial assets, money, and credit are distinct economic classes and should not be confused with each other, even if they are related.
  .
• Mining Analysts too conservative in metal price projections. 35 years in this business and I have never seen them get it right. This creates uncertainty in the market. Most are geologists or engineers and have little economic background to predict raw material prices. Since economists are also clueless - it makes for a volatile metals market. Key to the future will be the three “drivers” mentioned above. Metals are going much higher.
  .
• U.S. is a Welfare-Warfare State. 90% of our budget is spent on these two items. Both require printing massive amounts of money. Internationally the U.S. is the Good, Bad and the Ugly. Great nation for many things but foreign policy difficult since plenty of business is conducted in many countries that have horrible human rights records. We give more money to dictators than any country on earth. We are also the first country to send help for earthquakes and floods. We are the most generous nation.
  .
• U.S. had $21 trillion in direct and indirect obligations as of 2000. In 8 years this is now $53 trillion. A $32 trillion increase. Very inflationary. Bullish for all precious metals.
  .
• Highly Speculative world: J.P. Morgan with $1.2 billion in equity controlling $91 trillion in derivatives. Many foreign banks and investment groups will have problems as well in the future. Time to be conservative.
  .
• Best Investments:
  • Swiss Francs
  • Gold
  • Precious Metal Mining Stocks
  • Natural Resource Companies
  • One Year Government Bonds
    .
• Major stock market investments should wait until Interest rates are twice as high as today and then look to buy well known consumer brand large cap companies on world stock markets that will be much lower in price as inflation and interest rates head much higher and hit world stock markets hard. Precious metal stocks will be the strongest stock sector.
  .
• Gold should stay above $800 and if lower will only be temporary. Gold will trend higher for a decade. I see much higher prices.
  .
• Gold mining stocks are undervalued and weak holders are all out. As inflation numbers continue to be reported, these shares will be very strong. Inflation is from excess money creation not oil or commodities prices going up. Paper money is cause. Prices going up is the effect.
  .
• Credit and Monetary conditions are out of control and very dangerous. Our fund and client portfolios are basically in cash or precious metal stocks.
  .
• U.S. money supply is expanding but Monetary Base and M1 are now misleading as money is swept from checking accounts daily and placed in interest bearing money market accounts. M2 is now the only reliable money supply. Monetary Base and M1 numbers are misleading most commentators that are not sophisticated in Fed policies or new programs.
  .
• Bottom Line: G-8 countries cannot meet their financial promises and the political solution is to print money to make ends meet. This is now ingrained in their systems and with budget deficits mounting will become worse over time.
  .
• The world will not go into a depression like the 1930’s which was a depression of productivity.The depression of the future will be one of purchasing power of the lower and middle class wage earners who will see their standard of living reduced because of the paper money system.
  .
• The world will not come to and end. The future will be like the past only everything will be more expensive.

Thank you,

For more articles on gold, the stock market and economy please visit our website at: www.kengerbino.com

Ken Gerbino

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