Free-falling Oil Prices Are Slippery Slope for Global Economy

The other day as I was filling my tank and thinking about the still-plunging price of oil I had the distinct feeling if I kept staring at the pump I could actually see the prices decreasing before my very eyes. Maybe it was the cold medication…

At any rate, cheap oil, the reason for the slide in gas prices, is also proving a boon to low-income families who use a larger share of their income than their more affluent counterparts to heat their homes.  But whatever your income, if you use oil to heat your home, you’ve saved a significant amount this winter.

Unfortunately, cheap oil and gas will ultimately cost us far more than we’re saving on home heating oil or a tank full of gas. The continuing drop in oil prices stimulated by a worldwide oversupply is slamming stock markets in the United States and Europe, and has also taken a whack at our dollar after markets tried to bounce back last week.

According to Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management, “Right now, you could track the direction of stocks when you see where oil is trading.” And while in America many of us are enjoying the sale prices on gas, Europe’s getting worried.  One survey revealed German business confidence has sunk to an eleven-month low, while European Central Bank chief Mario Draghi hinted he might deploy another round of quantitative easing to counteract inflation and weak growth.

Back home, oil- and gas-producing companies and states are clearly suffering.  They’ve had to postpone plans for new production, cut back on capital spending and lay off workers.  States that once profited from the oil boom are now feeling the backlash of free-falling prices.

Investors’ fears that plummeting energy prices could trigger another economic contraction have renewed central banks’ demand for the yen, U.S. and German government debt as safe havens.

Central banks are also on a physical gold buying spree for the same reason—including nations we’d prefer not have the advantage over us, like China and Russia.  Is it smart to concede such a significant source of stable wealth?  I think even short-term history will show it’s not wise to allow your (let’s face it) enemies to corner the market on the world’s greatest tangible resource.

The fact is the safest of safe havens, by far, is physical gold.  When you buy physical gold you invest in a hard asset that’s impervious to an international oil glut or manufacturing slow-down.  And though we’ve seen relatively minimal inflation in recent years and have grown complacent about the possibility, make no mistake – where there’s paper money, there’s always the possibility of inflation. Just the other day the International Monetary Fund declared that inflation in Venezuela could conceivably outplace 700 percent this year.

Could it happen here? Perhaps not to that degree.  Then again, who could have predicted that Saudi Arabia would be having cash flow problems?  And if inflation hits, it will have a devastating impact on the buying power of your dollars, while leaving your gold untouched.