The Frankfurter Index
Reframing energy prices through the lens of hard currency.
“Money often costs too much.” – Ralph Waldo Emerson
During a recent appearance on the excellent Grant Williams Podcast, Simon Mikhailovich concluded with an illuminating story: Upon leaving the Metropolitan Museum of Art in New York with his granddaughter recently, he casually walked up to the array of hot dog vendors in front of the entrance, curious about the going rate. At $4 each, the price was much higher than the days of his youth, at least in nominal terms. With gold trading at approximately $2,700 an ounce, he made a mental note that one American Eagle would fetch about 675 hot dogs.
Mikhailovich has been tracking the price of New York hot dogs for many years, even finding pictures from other eras to flesh out the trend over time. In one picture found from 1906, hot dogs were three cents each, or two for a nickel. With the US dollar convertible to gold at a fixed price of $20.67, an ounce of gold would have bought 690 hot dogs.
In April of 2024, Jamie Kennedy, director of digital content for Golf Digest, posted a fascinating analysis of Tiger Woods’ historic 2000 season on the PGA Tour. Universally considered the greatest individual performance in golf history, the season garnered Woods $10.7 million in prize money for his accomplishments, an incredible sum for that period. According to Kennedy, those same results would have won him $92.3 million in 2024. The average price of gold in 2000 was approximately $270 per ounce. In 2024 it was closer to $2,400, also about nine times higher.
As Mikhailovich’s hot dog story and Woods’ prize bounty so vividly demonstrate, gold is the true center of the world’s financial universe and has been for thousands of years, no matter how unfashionable it might be to say so at any given time. The US dollar price of any good is actually two prices, one for the good and one for the dollar, and both can move independently. The gold prices of hot dogs and golf prizes have mostly stayed flat because there isn’t much in the way of innovation occurring in those particular supply chains. For many other goods—televisions and computer chips, for example—the deflationary force of technology brings prices down in both gold and dollar terms, outpacing fiat debasement. Few goods get genuinely more expensive over time, as the economy is nothing if not a grinding deflationary machine.
It is common knowledge that the US dollar has been continuously debased since President Nixon closed the gold window in 1971, yet the true significance of this phenomenon is seldom reflected in contemporary financial analysis. We can think of three reasons why. First, for much of the world, the dollar is the center of the financial universe, the fixed sun around which all other prices revolve. Second, the strength of the US dollar is frequently measured by the DXY index, which merely compares it to a basket of foreign currencies including the Euro, the Japanese Yen, and the British Pound. This gives a relative measure of the dollar’s value, not an absolute one. Finally, even when attempts are made to differentiate between real and nominal prices, US government inflation statistics are typically used. The government has a strong motivation to understate the true rate of inflation, of course, making this approach an imperfect one at best.
Proponents of the theory that the world will soon run out of oil—or cheap oil, or cheap oil from wherever it currently happens to be cheapest—claim that humanity is draining energy reserves at an unsustainable pace. Many invest heavily on the notion that, any day now, the brutal reality of geology will impose its will on the global economy, with catastrophe sure to follow. We have long argued that such pessimism amounts to a giant short bet on human ingenuity, a sucker’s trade if there ever was one. In our view, the oil and gas companies are technology powerhouses that employ some of the world’s smartest scientists and engineers, and the total available supply of hydrocarbons is effectively infinite in practical terms.
Which argument carries the day? For answers, we return to the gold standard.