This chart, released April 10th, 2008 by the American Geological Institute, shows oil by the barrel priced over the last seven years in the US dollar, the Euro dollar, and gold by the ounce. Oil on the commodities market is only ever priced in US dollars, so to get a clearer picture of how the price of oil trends, it is important to include and compare other units such as currencies and even other commodities as is done here. This is because, the dollar pricing itself could be having the most significant impact on the price of oil units. This seems to be the case today.

This data very clearly confirms this idea as it indicates that for about the last 7 years (at least) oil trend has been sideways. In other words, oil valued in gold hasn’t moved in 7 years. Yet, that same oil has become dramatically more expensive when priced in both of the currencies.

There are some reasons why this inflation is abnormal; for instance those same US dollars are backed by gold. As of March of 2008 priced in US dollars, the United States held 261.5 billion in gold. One of the reasons the US has this reserve is to prop up the value of US dollars. Given the value and nature of these gold reserves and the obvious relationship with the US currency, this chart seems to suggest other, very powerful inflationary influences are diminishing the US dollar. Contributing to this may be the 100s of billions of US dollars pumped into the banking system and the consistent downward spiral of the various Fed controlled rates.

But in what seems like a quietus of the dollar, one wonders how speculators will price-in the Fed’s new TAF auctions and new discount window for investment banking entities in the months and years to come.