The “Zigzag Mystery”
“Old Wine in a New Bottle”- A Philosophical Term But it Matches Most of the discoveries and Consequences of Humanitarian Sciences. The Zigzag Mystery, This Mystery is also one such consequence of human discovery.
Its mystery had its moral grounds way back in early 19th century with the fame of globalization. The heroes of this Mystery are Crude oil-Dollar-Gold and the unsung Hero is “Ego to be a Global monarch’. To be prompt the story started abruptly in 1975, when OPEC officially agreed to sell its oil exclusively for US dollars. Oil, gold and commodities have all been priced in US dollars. They are the Key Factors Deciding Global economy.
US Contributes 5% of World Population, Consumes 25% of world's fossil fuel-based energy; Imports about 75 % of its oil, but owns only 2% world reserves.
Hero No 1, Dollar: Most of the countries got Foreign Reserves. And these reserves are in form of Dollars.India has about 140 Billion Dollars of reserves. If the dollar looses value, the entire basket looses value.
Hero for No 1, Crude oil: Crude prices directly affect the oil import bill of any country. Increase in Imports Bill will increase the Trade Deficit, Resulted due to Imbalance in Export - Imports of countries. Higher Trade deficit would hit the value of currency of the country. This will affect the money circulation in the economy there by Rises inflation.
Hero behind No 1, Gold: From 1944 until 1971, US dollars were convertible into Gold by central banks in order to adjust for any trade imbalances between countries. Up to that point, the price of gold was fixed at US$35 per ounce. Once the US ceased gold convertibility in 1971, OPEC producers were forced to convert their excess US dollars by purchasing gold in the marketplace. This resulted in price increases of Gold eventually and continuously.
Clash of No 1’s: In Short weakening of the US dollar, e.g., due to the weakening US economy, causes crude oil prices to go up. Strengthening dollar makes the price of crude oil to decrease. It is explained by the Purchasing Power Parity theory, which assumes that the producers of crude oil should get the same price for oil in their own currency, after exchanging dollars they receive for crude oil.
For Ex In Barter System
For Ex:
1ltr Crude Oil Dollar Own Currecncy 1ltr Crude Oil
Sold Exchanging Buy
(Purchasing Power Parity theory, it is based on the law of one price: the theory states that, in ideally efficient markets, identical goods should have only one price).
Thus there starts, The zigzag factor between OPEC & dollar starts. In conclusion, the price of oil is to rise steadily as the supply/demand imbalance increases and the dollar declines, even if there is no a supply disruption, terrorist threats or geopolitical concerns to consider. As this happens, the price of precious metals will climb. We May Classify This Zigzag Mystery as a Part of Freekanomics or a Funancial Played by hefty Economies; But It’s always a New Bottle contains OLD WINE.
| 2009 | Crude Oil | Gold |
| JAN | $41.68 | $858.69 |
| FEB | $44.76 | $943.16 |
| MAR | $52.38 | $924.27 |
| APR | $51.55 | $890.20 |
| MAY | $66.31 | $928.64 |
| JUN | $69.16 | $945.67 |
| JUL | $69.45 | $934.23 |
| AUG | $72.74 | $949.38 |
| SEP | $66.02 | $996.59 |
| OCT | $77.00 | $1,043.16 |
| Value | Jan '09 | feb'09 | Mar'09 | Apr'09 | May'09 | Jun'09 | Jul '09 | Aug'09 | Sep'09 | Oct'09 |
| Crude Oil | $41.68 | $44.76 | $52.38 | $51.55 | $66.31 | $69.16 | $69.45 | $72.74 | $66.02 | $77.00 |
| Gold | $858.69 | $943.16 | $924.27 | $890.20 | $928.64 | $945.67 | $934.23 | $949.38 | $996.59 | $1,043.16 |
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