My friend and PhD candidate in economics, McD, left the following comment on my post Petrol Price in Gold Terms, where I point out the reasonably constant ratio of the two commodities since 2002:
With regard to your post here… I’ve often seen this comparison made and don’t find it nearly as profound as is made out. In fact, I’d go so far as to say that you have the causation roughly backward. Energy is critical input for all mining activity. Why then wouldn’t you expect gold to exhibit some kind of long-term mean relationship with oil?
You could make the same comparison using a number of commodities and arrive at more-or-less the same result. The point is that energy is a crucial input for all of them and ultimately determines supply prices. See here.
My answer: I do expect commodities to exhibit a long-term mean relationship with oil. What I do not expect, however, is that the exchange value of paper monies (like Rands and US dollars) to commodities will be constant.
So to be clear (which I was in the first post, but to make the point again), my argument is that it is the exchange ratio of the rand to both gold and oil that is going down because paper monies are being debased, and that this is why the price of both gold, oil, wheat, soybeans, etc. have all increased since 1971 in paper money terms, or why they did not fall as far as they otherwise would have in the absence of an increase of paper money supply.