Traditionally, investors considered gold, a major commodity on the commodities index, an investment that provided an excellent hedge against inflation and global economic recessions.  Oil was thought of as commodity that ran perpendicular to the path of gold.  Each commodity had its roots in different fields of demand and carried with them different behavior trends and patterns.  But a curious thing has happened over the past ten years or so which has only been magnified by the most recent global recession: gold and oil have become bound to each other in a race to depletion that neither wants to win.

Many argue that peak oil is upon us.  But there is no arguing with the fact that oil wealth is the economic scale upon which many nations and regions are measured by.  It is also a major economic and social engine that drives wars, conflicts, foreign policy and global economic trends.  Prices fluctuate as oil cartels cut supply and demand begins to catch up.  It’s a constant game of accordion, stretch and catch back up, compress and consume.

Gold on the other hand has always been looked at as a store of wealth.  It also happens that it’s been a great investment over the past decade and a half but many governments and individuals use it as an economic insurance policy.  It’s usually always behaved in an opposite manner relative to oil.  Gold is a tough commodity to pin down however, since new discoveries are being made every day.  Besides the discoveries, almost everyone owns some amount of gold and if the price was to shoot high enough, people would melt down their possessions to cash in on the higher gold prices.

But what if both gold and oil are looked at as stores of wealth?  Not on the individual scale but on the larger scale.  Oil is a store of national wealth that disappears when it’s combined with fire.  But gold is something that cannot be destroyed in large quantities.  Countries and governments that have begun to trade oil for gold are beginning to see that a major paradigm shift has occurred as of recently, and that gold may be seriously undervalued as both a hedge and a commodity when accepted as trade for a country’s oil wealth.

Eventually, as predicted by sheer common sense, oil will run out as gold begins to gain value compared to it.  As this happens, it will take more and more gold to buy smaller and smaller quantities of oil.  Once oil is exhausted as a resource, those countries that took gold as payment will be left with a vast storage of wealth.  This is precisely why gold and oil have begun to decouple over the past decade.  As oil begins to peak and demand rises faster than supply or, even more dramatically, as demand rises and reserves dry up, gold also rises.  Those left holding the oil are the losers while those left holding the gold will benefit for as long as gold is money.  Currencies will inflate but gold will remain the winner as its value as a hedge increases.

Gold will eventually break the glass ceiling set upon it by commodity traders in the next decade or two.  Expect oil to become scarcer in those nations that have been traditionally oil rich.  But these same nations will be left with a lopsided amount of gold wealth as a result.