GOLD RUSH

[sumisu]

Peak Oil Is Real, Act Now Or Face The Consequences

By: Alex Stanczyk Saturday, February 13, 2010 12:00 PM

http://www.istockanalyst.com/article/viewarticle/articleid/386426

Whenever I think about oil, and the fact that we are likely already past peak oil production, I am reminded of what oil has done for us as human beings.

For those of you unfamiliar with the Peak Oil concept, it is not so much a belief that we are running out of oil so much as a historically proven description of the behavior of producing oil fields. For a great video primer on the subject, see Chris Martenson's fine work in Crash Course Video 17a.

Oil is, obviously, stored energy. But what I think many fail to consider, is that it is cheap energy, and it accomplishes a great deal of work that otherwise may have had to been performed by human energy.

Cheap energy has affected everything about our lives as human beings ever since the combustion engine.

I am reminded of how America went from an agricultural society with most of its citizens living and working on farms, to today the work that would take perhaps a few hundred men or more can be accomplished by two guys, and an oil powered tractor.

By ancient standards, every single person in the western world lives a lifestyle of a King. From the wide variety of foods we so conveniently have available to us in our grocery stores, to simple conveniences we have for generations taken for granted. Is this solely because humans are so much more advanced technologically, or does it perhaps have something to do with how cheap energy has been for the last 50 years?

We run lights all day and all night, each light bulb if powered by humans would require a man riding an exercise bike 24 hours a day in your basement. The food in your refrigerator for example is more energy intensive than you may realize. It has been estimated that 1 lb of beef can take up to 8 lbs of grain to produce, and each pound of grain that goes into raising that livestock again goes back to those oil powered tractors. It also took oil powered trucks to bring that beef from the farm to your grocery store shelf, and even more oil to fuel your car or truck taking it from the store to your home. Even something so simple as water takes power to bring to your faucet, and more power if its filtered first either by your favorite bottled water company, the local muni water system, or your private filtration system.

In terms of gold, it also comes back to that labor/energy component. You see, in our view, gold is simply a method of storing energy, as it has been for thousands of years.

It could be argued that this ability to store labor is a primary requirement of money.

Another way of looking at it, is that labor produces wealth, as any labor above that needed to accommodate basic needs such as a roof over our heads, food and water, basic transportation and clothing can of course be opted into savings accounts, stock markets and other paper instruments, and for some of our more astute readers, gold and silver.

Gold has performed this role of wealth/energy storage for thousands of years of human history, and indeed has been referred to as the Money of Kings.

So the question might be asked: Why then is gold so good at storing wealth?

It comes back to the labor component. In ancient times, it took the measure of a mans life to extract and refine a single ounce of gold from the earth. There was no internal combustion engine, and no oil burning trucks that could haul literally hundreds of tons of ore.

Can you imagine how many mens labor it would take to move the ore that a single truck like the one below could move?

For a good deal of history, a mans life could be purchased, for his entire life, for an ounce of gold. This of course makes mathematical sense, if it took an entire mans life labor to extract an ounce of gold, of course it would make sense that it would equal a mans lifelong labor.

All through history, right up until the last century, extracting gold from the earth was a labor intensive process. With the adoption of the use of oil powered machinery, the ability to extract huge amounts of gold from the earth became possible.

Thanks to cheap energy (that would have been mens labor), over 80% of the known above ground reserves of gold have been extracted from the earth just in the last 100 years.



So let me bring that into perspective for you across the timeline. For over 5000 years of history, gold has been very difficult to remove from the earth, yet in the last 100 years has become relatively easy in comparison.

In ancient times, one ounce of gold was valued at the the amount of productive capacity of a mans life. This changed because of the energy equation of cheap energy in the form of oil.

If the Peak Oil argument is true, and we have good reason to believe it is, then the energy equation in regards to gold extraction may be reverting back to what it was previous. Energy inputs are one of the most important costs in the production of gold. If it is clear oil production will continue to drop, while demand continues to rise, then the cost of oil must also rise, and therefore the cost of extracting gold from the earth.

How will this impact the value of an ounce of gold?

It has occurred to me that some of the greatest fortunes ever made have been at the front of trends that affect all of mankind. Clearly, energy, or rather is lower availability in the years ahead is something that will change drastically over the next 30 years. This massive shift will affect every aspect of life, just as computers have over the last 20 years.

Interestingly, gold has retained its purchasing power well over time in terms of raw materials if not in paper. I say this because if we wanted to use the mans life labor model, how much does a man in a typical western nation earn in his lifetime in dollars? Certainly far more than the the price per ounce we see reflected in the "paper gold" markets.

Yet even with the advances in how much has been mined by use of cheap energy, the ratio of gold per capita has remained fairly constant.



In terms of the price of oil in the future and the effect it will have on the price of gold, I am of the opinion that it will be somewhere between what it is now, and the amount a man is capable of earning in his lifetime. It may not go so high as that number, but it certainly has in the past, and it will certainly be higher than it is now.