Peak Oil is You
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Page added on July 19, 2013
Gold, Oil & Natural Resource Depletion
Someone once said that it takes money to make money. In this day and age where we advance quickly on the depletion of natural resources, it might be wise to say that it takes energy to make energy. We could expand that thought further by saying that as energy sources become scarce, it takes more energy to make energy and that statement would be true. In terms of profit and loss, we can easily say that unless our industrial based civilization finds cheaper alternatives to fossil fuels than the net return of producing energy is going to cause the price of goods to go up because it will become necessary to charge more for energy to produce goods.
In 2005, the world experienced a global peak in oil production. This means that we were using more oil than we were able to extract around the world, not just within a single nation. This goes back to the fact that we must spend more energy or better quality energy to produce less energy or poorer quality energy. Consider return on investment and apply it to energy. The highest grade of energy is that which produces the most usable energy for the least cost. Quality energy produces the most energy for the least cost, whereas poor energy produces either less energy or energy that has a poor usable percentage. In other words, out of an 100% of batch of energy perhaps only 60% is usable, whereas, with quality energy out of the same batch, 85% is usable. So what Peak Resources sees is the inevitable fact that it will cost more to do business and prices will rise regardless of economic policy written by Federal Reserve, which is also known as the Central Banks.
When inflation occurs the price of gold rises accordingly. We have been watching the price of gold rise since 2008, mostly due to the fact that the American Dollar is weakening. Yet, another set of factors is primed to kick in that will affect the price of gold. One of those factors is the inflation that we are beginning to see as the cost of energy rises. The second is that the price of Gold responds to the oil crisis. We saw that in during the oil embargo of the 1970′s that the price of gold rose significantly and that, once, the issue was resolved the price of gold resumed to its semi-normal price range. We saw a repeat of the 1970 gold price surge in 2005 when the world experienced global peak oil. Even in today’s market, the price of gold is 350+ percent above normal. While many people would say that this is due to the crash of the housing market, (which is partially true), it is also in response to the fact that the price of oil has risen and remained above $100 a barrel for quite some time.
Further consideration is the fact that both technology is allowing access to different geological energy wells but that those wells are tapering off production quicker. Another factor that is going to impede the cost of cheap energy is the environmental impact and public input for things like fracking, development of oil sands, and drilling in environmentally sensitive areas. In short, Peak Resources does not see the energy issue resolving itself anytime soon. Resource investment should consider one last piece of evidence into the mix; Peak Gold, the looming gold cliff that is expected to strike in 2017 will likely send the price of gold through the roof.
6 Comments on "Gold, Oil & Natural Resource Depletion"
BillT on Fri, 19th Jul 2013 12:55 am
“… prices will rise regardless of economic policy …” True statement.
NET energy has been in decline for years, perhaps decades, but is getting much more noticeable now.
DC on Fri, 19th Jul 2013 1:46 am
Physical Gold production has already likely peaked. Look at the explosion of ‘paper’ gold stocks in recent decades. Of course, there are a lot of other paper commodities floating around too, but like oil, there is far less of it than all the paper flowing back and forth would suggest. Actual gold\silver will be the only currency standing after the collapse, but like oil, clean water and food, there will be a lot less of it around than many people assume will be.
GregT on Fri, 19th Jul 2013 3:22 am
Interestingly enough, fiat currency was created by the blacksmiths. It was those men, whom safeguarded the gold, that first realized that people would trade their certificates of gold, rather than exchange the gold itself. The physical gold remained safe in their vaults.
They eventually figured out that they could print more certificates for gold, than the gold that they actually held. As long as the owners did not ask for the gold back, all was well, and the blacksmiths became very wealthy.
Fast forward to today, and we still have the same system in place, except that there is no longer any gold in the vaults. Our monetary certificates are backed by nothing more than faith.
The Rothschilds have now taken it one step further, they still sell paper certificates supposedly backed by gold, as well as paper currencies backed by nothing.
When confidence in the system falters, people flock to the banks, demanding their paper currency. This causes a bank run, or a bank holiday. There isn’t enough paper money to give to everyone, and the system implodes.
When people demand physical gold for their paper gold certificates, the same will happen. Those holding real physical gold will have an asset, those that do not, will own nothing but worthless pieces of paper.
It is estimated that there is around 100 times as many pieces of paper gold, as there is physical. A lot of people, are going to lose lot of money, when the system implodes.
shortonoil on Fri, 19th Jul 2013 6:12 pm
They are correct that it is taking more energy to produce energy, but their numbers are a little out of whack. The over all efficiency of convention crude production is about 20% for extraction (it takes 5 BTU from the well head to put 1 BTU back in). The energy returned to the end user is no better. Of the 140,000 BTU in a gallon of convention crude, about 28,000 gets back to the end consumer. The rest goes to extraction, processing, distribution, and the waste heat that the Second Law says must be produced for the process to go forward. That’s about 29%.
Tar sands and shale oil — you don’t even want to know! It’s down right depressing.
Newfie on Fri, 19th Jul 2013 7:42 pm
Gold is just a shiny rock that has very little intrinsic value. I would rather have a two dozen cases of canned beans than an ounce of gold.
BillT on Sat, 20th Jul 2013 1:57 am
Newfie, but, if you have cash left AFTER you have the two dozen cases of beans, gold is the best place to put it. After all, if you have to abandon the beans, gold is easy to carry and then you can trade for more beans if you find someone with extra. I’ll take my chances with a ‘wealth transfer vehicle’ like gold. It has been a WTV for thousands of years, all over the world.