The (160 to 1) Gold-Silver Ratio Every Investor Needs To Know About

According to my new research, there is a very important Gold-Silver ratio that every precious metals investor needs to know about.  While most precious metals investors are familiar with the Gold-Silver price ratio of 68/1 (presently) as well as the Silver-Gold production ratio of nearly 9/1 (2015), they have no idea about an even more important ratio that I will explain below.

Before I get into this important Gold-Silver ratio, let’s quickly examine some of the historic ratios listed above.

The Historic Gold-Silver Price Ratio Briefly Explained

The Gold-Silver price ratio remained 15/1 (thereabouts) for centuries until it started to rise in 1874, due to the Coinage Act of 1873 that stated:

The Coinage Act of 1873 or Mint Act of 1873, 17 Stat. 424, was a general revision of the laws relating to the Mint of the United States. In abolishing the right of holders of silver bullion to have their metal struck into fully legal tender dollar coins, it ended bimetallism in the United States, placing the nation firmly on the gold standard. Because of this, the act became contentious in later years, and was denounced by people who wanted inflation as the “Crime of ’73” (Source: Wikipedia)

By removing silver as legal tender in 1873, this impacted the value of silver.  There have been many conspiracy theories stating that the Coinage Act of 1873, which ended the bimetallism standard (gold & silver), destroyed the value of silver as money.  However, congress passed a law called the Bland-Allison Act in 1878 that required the U.S. Treasury to purchase silver every month to make Silver Dollars:

The Bland–Allison Act, also referred to as the Grand Bland Plan of 1878, was an act of United States Congress requiring the U.S. Treasury to buy a certain amount of silver and put it into circulation as silver dollars. Though the bill was vetoed by President Rutherford B. Hayes, the Congress overrode Hayes’ veto on February 23, 1878 to enact the law (Source: Wikipedia).

Here we can see that Congress actually overrode President Rutherford Hayes veto of this bill.  At that point in time in the history of the United States, Congress was not totally corrupted by the elite or corporations as they are today.

Again, there’s been a lot of conspiracy theories on the Crime of 1873 that I won’t get into.  My opinion on the matter is still not decided, but the Gold-Silver price ratio continued to increase even after silver was reintroduced by the U.S. Treasury to coin Silver Dollars after 1878 and various denominations until 1965.

For example, the Gold-Silver price ratio continued to increase from 15/1 in 1873 to a high of 71/1 in 1931 (Source: U.S. Bureau of Mines 1932 Gold & Silver Yearbook).  The rapidly increasing Gold-Silver ratio from 39/1 in 1929 to 71/1 in 1931 was due to the U.S. Great Depression.

Many precious metals investor believe the value of gold and silver should be tied to the actual Silver-Gold production ratio.  While this made sense in the past, the current Gold-Silver price ratio is based on their COST of primary production rather than RATIO of production.

The Historic Silver-Gold Production Ratio Briefly Explained

According to the data put out by the U.S. Bureau of Mines in 1930 for world gold and silver production from 1493-1927, the average annual silver production in the 1700’s was roughly 18.3 million oz (Moz) versus 612,000 oz of gold.  This was a Silver-Gold production ratio of 30/1.  Basically, the world was producing 30 times more silver in the 1700’s than gold. 

However, the Gold-Silver price ratio remained at 15/1 for that century.  Now, in 1927 (the last year this report provided data), the world produced 251 Moz of silver and 19.4 Moz of gold.  This turned out to be a Silver-Gold production ratio of 13/1 in 1927.  However, the Gold-Silver price ratio had risen to 33/1 in 1927.  Even though the world was producing more gold in respect to silver in 1927, the value of silver had declined from $1.29 an ounce in the 1700’s to $0.58 in 1927.

While there is evidence that the elite were manipulating the value of silver for centuries by the excellent work of Charles Savoie on his site, SilverStealers.net, another reason for the decline in value of silver versus gold was due to the falling cost to produce silver as coal and oil were substituted as the main energy sources compared to human and animal labor for the past 2,000+ years.

Currently, the world produced 887 Moz of silver and 101.5 Moz of gold in 2015.  The Silver-Gold production ratio is now lower at 8.7/1 while the Gold-Silver price ratio of 74.1 was much higher in 2015 (the price of gold was $1,160 and silver $15.68 in 2015).

Again, the value of gold and silver have been valued based on a “Commodity Pricing Mechanism” (their cost of production), rather than their superior “Store of Wealth” properties.  More on this in future articles.

The Important Gold-Silver Fuel Consumption Ratio Is Unknown By Most Investors

Because the quality of gold ore has declined over the century, the amount of energy consumed in its extraction has increased substantially.  I have been documenting this in past articles on the rising fuel consumption by the top primary gold miners.  However, I have not written many articles on how fuel consumption in the gold mining industry compares to the primary silver mining industry.

Well, here it is.  According to the data put out by Barrick, Newmont and Pan American Silver in their Sustainability Reports, it took 32 gallons of fuel to produce an ounce of gold versus 0.20 gallons of fuel to produce an ounce of silver:

Fuel-Consumption-Per-Oz-Gold-vs-Silver

Thus, the Gold-Silver fuel consumption ratio shown in the chart above is 160/1.  I arrived at that ratio by dividing Barrick and Newmont’s 32 gallons of fuel per oz of gold by Pan American Silver’s 0.20 gallons of fuel per oz of silver to get that 160/1 ratio,

This is a very important ratio to understand due to the upcoming collapse of U.S. and Global oil production.  Basically, the mining of gold will be impacted much greater than silver due the massive amount of fuel that is needed to produce gold compared to silver. 

I decided to use Pan American Silver as an example for the primary silver mining industry because Pan American Silver is one of the few companies that reports data in a Sustainability Report.  That being said, I would imagine fuel consumption results would be similar in the overall primary silver mining industry.  This would also be true for the gold mining industry as well.

Now, let me clarify that chart above.  It only includes Pan American Silver’s primary silver producing mines.  Even though Pan American Silver produced a total of 26 Moz in 2015, I only used their primary silver mines that produced 18.3 Moz that year.  If I was to include their other lower grade silver and gold mines, this would be the result:

Fuel-Consumption-Per-oz-Gold-vs-TOTAL-Silver

If we include ALL of Pan American Silver mines, the total fuel consumption would increase to 0.80 gallons per oz of silver produced.  This would change the Gold-Silver fuel consumption ratio to 40/1… still high though.

For example, Pan American Silver’s Dolores Mine is an open-pit mine with low gold and silver ore grades.  Of the total 11 million tonnes of ore Pan American Silver processed from its mines in 2015, the Dolores Mine accounted for 6.1 million tonnes, or 55% of the total.

This is why I removed the Dolores Mine from the calculation, because it is behaving more like a gold mine with by-product silver.  I wanted to get a more representative figure for the primary silver mining industry.  Pan American Silver’s primary silver mines produced 18.3 Moz while consuming 3.5 million gallons of fuel in 2015, for a fuel consumption of 0.20 gallons per ounce.

Here is the breakdown of Pan American Silver’s primary silver mines fuel consumption per ounce since 2010:

Pan-American-Silver-Fuel-Consumption-Primary-Mines

As we can see in the chart above, Pan American Silver’s primary silver mines fuel consumption per ounce of silver produced increased from 0.12 gallons per oz in 2010 to 0.20 gallons per ounce in 2015.  Even though this is a 66% increase in fuel consumption per oz of silver produced since 2010, it is still quite small compared to the top two primary gold mining companies, Barrick and Newmont, 32 gallons per oz of gold produced.

Barrick-&-Newmont-Liquid-Fuel-Consumption-2005-2015

The rising fuel consumption in both the gold and silver primary mining industry is due to falling ore grades.  I just takes more fuel to remove lower quality ore at longer distances and elevations as underground and open-pit mines age and deepen.

The Gold-Silver fuel consumption ratio of 160/1 is a bad sign for the primary gold mining industry as available supplies of liquid fuels will diminish in the future.  I believe primary silver mining will continue to take place on a larger percentage basis compared to gold in the future due to the relatively small amount of fuel consumed producing silver versus gold.

This Gold-Silver fuel consumption ratio needs to be understood by the precious metals investor as the world economic activity declines under falling liquid energy production.  There are several impacts that need to be explored here.  One is the possible falling value of gold mining stocks to a larger degree versus silver mining stocks in the future as companies such as Barrick will be producing a lot less gold as available fuel supplies contract.

I will be discussing this in more detail in future articles.  However, this Gold-Silver fuel consumption ratio will be another important ratio for investors to consider going forward.

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61 Comments on "The (160 to 1) Gold-Silver Ratio Every Investor Needs To Know About"

  1. So is this bullish for gold investors / bearish for silver one?

    • THAT is a good question in my opinion.

    • Stock to flow ratio:
      http://www.zerohedge.com/sites/default/files/images/user5/imageroot/draghi/Erste%204.jpg

      The flow in gold will go down, flow in silver goes up. Silver stock will rise too because of rising investment interest, and a decline in industrial use. So gold is steady, while silver supply rises in a low silver stock environment. More supply = lower price / less gold for your silver. But gold will be out of reach for the majority.

      5 ounces of silver for one ounce of gold? Who knows…

      Hedge your physical silver with physical gold & vice versa. My 2 cents.

    • Bill,

      You bring up a great question. Common sense analysis tells me that falling oil production will be extremely bullish for gold and silver. This is due to the collapse of most paper assets and real estate values. However, falling gold production due to constrained liquid fuel supplies is more bearish for gold mining companies than silver mining companies.

      steve

      • “However, falling gold production due to constrained liquid fuel supplies is more bearish for gold mining companies than silver mining companies.”

        And perhaps more bullish for those that already own gold?

  2. “This is a very important ratio to understand due to the upcoming collapse of U.S. and Global oil production. Basically, the mining of gold will be impacted much greater than silver due the massive amount of fuel that is needed to produce gold compared to silver. ”

    On the one hand we see oil production dropping. On the other hand, we can’t afford expensive gasoline or diesel, which has limited the price of liquid fuels in the last couple years.

    If gasoline/diesel becomes less available the price has to go up at the pump. It will be interesting to see how this plays out.

    • I believe the price of oil will decline due to global economic slowdowns and massive untapped reserves in Iran and Iraq not to mention the arctic. but you need to also consider the reduction in the quality of the ore and the resulting increasing expense just to mine it. Finally you should consider the global central banks creating trillions of currency units and blowing these massive bond and equity bubbles to create this so called “wealth” all around the world. That wealth is backed by confidence in the central banks continued “printing” and when the confidence in the value of these ever-undermined units of currency declines as it is currently doing the owners of that wealth will flee into the metals like a cattle stampede. We humans have a herd mentality and the first to exit exits best and the first to buy PM buys best as well. Even if you are a few years early this is a once in a civilization event coming up when ALL the currency on the planet is fiat and there is no where else to go. Forget the TINA mentality. The tide is turning.

  3. Pump Up the Price?

    Second largest inventory draw down on record???
    The reason behind crude oils uptick.
    Hurricane/Tropical Storm Hermine.

    Interrupted deliveries to the Gulf Coast (PADD3) and the East Coast (PADD1)
    Missing deliveries of 12.95 million barrels
    That essentially covers the draw down of weekly EIA US oil inventories.

    Of course these important statistics were conveniently “forgotten” by the financial MSM when reporting the “second largest draw down on record” of US oil inventory. Inferring a surge in retail sales and useage by the general populace, so therefore the economy is doing great.

    Sorry to be off topic Steve, but felt that this was important to maintain “true” energy use perspective.

    • OutLookingIn,

      Yes…. excellent point. No worries on being OFF TOPIC. Hell, if you discuss ENERGY, you will never hear me complain…. LOL. That being said, I did not take the time to understand that the Hurricane disrupted oil shipments. It makes perfect sense. On the other hand, the U.S. still had rising distillate stocks of gasoline and diesel. So, I knew something just wasn’t right.

      steve

  4. what difference does it make when its all controlled by the same few people. i think the price will always only what they want.

    • yea, i know the answers are they are going to lose control lsooner or than later. why would that be ? THEY HAVE more money and power now than ever before. i say fat chance. your just dreaming a pipe dream

    • Keith,

      Yes, the elite control most of the wealth in the world. This hasn’t changed for thousands of years. However, what has changed is that the ELITE and CORPORATIONS will suffer as global oil production heads south in a BIG WAY. Cheap and abundant oil allowed the growth of globalism, multinational corporations and Big Government. Falling energy production on top of a falling EROI – Energy Returned On Investment will destroy globalism, multinational corporations and Big Govt.

      steve

      • Steve is spot-on right about this. There have been powerful corporations and power structures BEFORE the oil use era. But cheap abundant energy bloated corporations and power structure organizations [like governments] to what they are in this era.

      • This lack of energy will collapse the U.S. government. Washington will fall. Chaos will reign.

  5. This 160 to 1 ratio is not accurate in my opinion. We have a current price distorsion currently on the gold silver ratio with only 9 to 1 in production. It was somewhat jusitifed in the past when govt had huge stock piles of silver, but now all govts have run out of silver.
    More than 70% of the silver production comes as silver as a by-product of zinc, copper, gold, etc…
    Hence, this 160 to 1 only applies to 30% primary silver mines, which by definition, only exists because there is high grade enough to justify its production.
    If silver was at its true market price where then these zinc, copper, gold mine would become just as much silver primary mines – what would then be the oil consumption for these lower grade mines?
    If you can answer that question, then you could get a better more accurate gold/silver oil consumption ratio.

    • I’m in 100 % agreement with you Phil. Steve you have to level out the playing field better ! Physical silver has been used in industry and technology since 1940. As well and later in medicine . The amount of silver that will never be held again is quite sizable compared to that of physical gold.
      It has been said that there is 20 % less above ground silver than there is gold present day.
      Consumption overall is huge.

    • Phil Champagne,

      You bring up a good point. However, when the collapse of U.S. and global oil production begins in earnest, base metal mining will fall off a cliff. Thus, the 57% of Copper, Zinc and Lead by-product silver production will decline substantially. We must remember that 13% of silver production is a by-product of gold production.

      Regardless, the article was more to educate investors on just how much liquid fuel is consumed in mining gold than mining primary silver. It was less about the 57% of by-product silver from base metal mining.

      Furthermore, even if the value of silver skyrocketed in the future, it would not be feasible to mine silver from base metal mines due to the falling liquid oil supplies. It won’t matter the price of silver at this time… what will matter is the AVAILABILITY of liquid fuels.

      steve

      • Hey Steve,
        Maybe they can make rechargeable mining equipment lol

      • > However, when the collapse of U.S. and global oil production begins in earnest, base metal mining will fall off a cliff.

        Hence considering the 57% as by-product, it is only more bullish for silver, I definitely agree.

        But remember, I brought this point in reference to your 160-to-1 oil consumption ratio that you based on current conditions. I only wanted to bring up the point that to give a more accurate ratio is difficult considering the distorsion we have in the price right now which the heavy by-product production of silver gives as indication.
        One could look at the best 20% highest gold mine grade and compare their oil consumption to silver. If that number could be extracted, it might be more accurate. If we only focus on the best high grade for gold, the oil production will be much lower, hence the 160 to 1 brought down to a much lower value. But I don’t know how easy to get this accurate number.

        • Phil Champagne,

          Yes, it is highly likely that higher ore grade gold mines would use less fuel consumption. I believe Newmont and Barrick are producing gold at an average yield of something like 1.2 grams per tonne. So, the higher the ore grade or yield, the gallons of fuel consumption per oz would decline.

          That being said, the average global gold ore grade is now only 1.06 g/t. Even though Klondex Midas Mine in Nevada is producing gold at 0.26 oz per ton (7.4 grams per ton), it only produced 6,700 oz of gold Q2 2016. There just aren’t that many high quality gold mines producing a lot of gold.

          Which means, most of the gold today is from low quality ore from open pit mines. That takes a lot of liquid fuel to extract and remove.

          steve

          • I’m sure that’s true. But coming back to my original question – what would be the gold/silver ratio in oil consumption when comparing strictly say the highest grade gold mine versus those of silver. And an important remaining question, would that be an accurate representation, and if not, is there a metric that could be used with confidence that it is avoiding the price anomaly on silver? Such anomaly induced by a century of govt offloading their stockpile of silver which have now become empty.

  6. Now you put water into a cup – it becomes the cup!

    Energy flows…!

  7. Some University attempted to model future silver production

    http://www.sciencedirect.com/science/article/pii/S0921344913002747

    • Bill,

      Yes, I have seen that white paper. Unfortunately, these scientists are too specialized to understand the Falling EROI and declining global oil production. Most of this analysis will become meaningless over the next 5-10 years.

      steve

  8. oil price is going down?
    Never! or kid’s thought?

    because truely the value of US doller is almost zero now.
    US doller already lost its own value perfectly.

    they know it than anyone else better.

    in this case, i can’t surprize even if oil price reach 1000 US$/gallon.
    they have to pretend oil price being lower.

    so they must to dump oil at any cost, is only for dumping silver!

  9. Steve,

    Great Article. A very important insight into the differences in energy costs of production. The difference of .2 gallons versus .8 gallons (400%) bring into question if it is he accounting method of a “by product silver” versus a “primary product silver?

    I have studied the miners reports for almost five years and they all seem full of BS and obfuscation. I would like to be able to calculate the actual “all in costs” of producing an ounce of anything so as to be able to make intelligent comparisons and conclusions.

    Do these fuel costs include final delivery to market or just ore out of the mine? Are there huge differences between “primary” silver miners and “by product” miners?

    Is there any calculation of the total energy required for out of the ground to in my hand? Or is all that transportation/refining/processing energy just left out?

    You sure know how to rock the brain cells.

    Thanks,

    SteveW

    • SteveW,

      Just to answer one of your questions would fill a book… LOL. No, the mining industry leaves out a lot of things when it calculates its AISC- All In Sustaining Cost. Furthermore, the mining industry has been cannibalizing itself over the past several decades by the way of its SHAREHOLDERS. They are the real bag holders.

      By issuing stock to pay for new production has also destroyed the real value of producing gold or silver. If the mining industry was forced to use its own capital from PROFITS to pay for new production, it would have gone bankrupt years ago.

      SteveW, the only reason Pan American Silver’s total fuel consumption was 0.80 gallons per oz versus the 0.20 gallons per ounce is that they have one large OPEN-PIT Gold mine with silver and a smaller gold-silver mine with a high amount of processed ore. I just used their primary silver mines to get an idea of primary silver liquid fuel consumption.

      There is nothing wrong with having an open-pit mine with low gold and silver ore grades if it can be profitable. However, when liquid fuel supplies become tight, than the highest consumers of liquid fuel will be the ones that go first. Pan American Silver can still produce a lot of silver in its primary silver mines if it had to close down its Dolores low quality gold and silver Mine.

      steve

      • Thanks Steve,

        It just confirms my apprehension about buying and/or owning miners and why you have been so reticent to identify good miners as investments.

        Thanks for your thought full info. Slowly but surely I am understand[ng.

        SteveW

  10. Hi,
    at current gold/silver ratio, you need to multiplie the 0.80 gallon/once by 71 = 56.80 gallons per/once to have the same amount of revenue. By doing so, we can clearly see that silver used more energy to have the same revenue.

  11. Okay… fuel costs/consumption but you don’t mention that most silver is secondarily mined via copper, and no one is in need of a lot of copper right now or in the near future. And copper has dropped significantly in price. If anything, it will cause silver to skyrocket higher and gold will cost way more… if you can get ANY by that time.

    • Jon J,

      I didn’t mention it because the article was based on comparing primary gold to primary silver mining. According to the statistics, ZINC & LEAD account for 34% of by-produce silver production and COPPER accounts for 22%.

      However, I agree with you that base metal mining production will fall much quicker, impacting overall silver production.

      steve

      • I wish you had mentioned in the article that China is stockpiling industrial metals as well as the fine ones. I think they plan on having industrial output as well as the price appreciation when it is no longer profitable to mine baser metals. Really, doesn’t price solve everything?

  12. Less than a gallon of fuel for 1 oz silver? I don’t see how that’s possible…how many tons of ore does it take for 1 oz?

    • maxblockm,

      It’s because the primary silver mines are deep underground mines that don’t use that much liquid fuel to remove the ore. It is more concentrated ore. For example, each tonne of primary silver mine ore at Pan American Silver contained 4.4 ounces of silver. Now compare that to Barrick that produced gold at 0.04 oz per tonne.

      Thus, Pan American Silver primary mines had 110 times more silver per tonne of ore than gold at Barrick. This is why their fuel consumption is much lower.

      steve

  13. it is very important to note here that most silver mined is a bi-product of other metal mining, gold copper, lead zinc etc, so it makes sense that if gold production is affected by decreasing oil supplies then this would be super bullish for silver if only primary silver mines were left to try and satisfy an ever increasing demand, silver is used up never to return to the market. silver will be one of the first rare earth metals to be gone forever, regardless of what ratios you may use in your evaluations

    • bill simmons,

      Yes, I realize that by-product silver accounts for 70% of global silver mine supply. If you read my comments, I stated that the article was based on comparing gold to primary silver mining.

      That being said, I doubt silver will be the first rare earth metal to be depleted. First of all, silver is not a rare earth mineral. Secondly, because silver mining consumes the least amount of liquid fuel consumption compared to most other metals.

      Lastly, the value of silver will rise much higher compared to gold due to falling global oil production. However, the primary silver mining industry will survive much better than gold due to consuming much less liquid fuel.

      steve

  14. Thanks Steve, was very important to read for mining investors. regards

  15. Hello, Steve…We all know that prices are determined at the margin. Whether we are pricing gold or silver or copper or wine, the market gets cleared constantly as each buyer and seller are matched up. If the AISC of silver goes up X % at some mines because of fuel costs, and the next door mine has fuel costs rising faster, we can’t know whether the AISC are higher next door unless we know about changes in the other factors. If the cost of labor or fees for example, goes up faster than the price of fuel, then fuel is not as important as a determiner.

    If the price of fuel goes up so much and quality of ore goes down so much, that the resultant AISC for silver at any ONE particular mine goes up 20X, it does not mean that that mine stops production. It may get squeezed out by lower cost producers, for some time period, but that is the case now and that has always been the case. There will always be enough fuel, if we continue to be in a free market. Price is the determiner. If consumers and manufacturers are not willing to pay $200.00 per ounce for silver, then the highest-cost producers will shut down. The market will remain in balance at any price point.

    I think an appropriate research goal is to determine which mining companies have the highest AISC — IF the cost of fuel goes up more than the other costs. And which miners will be able to weather the storm of increased fuel costs better than their competitors.

    Because silver is very much an industrial metal, and it has unique characteristics, industrial use will continue to be a floor under silver demand. Thinking of purely industrial demand, the price of silver is relatively inelastic. If the price of silver doubles or goes up five-fold, I don’t see copper or any other metal being substituted for it, especially because in most requirements the amount of silver used is quite small. Copper wires are on their way out, being replaced by silver in new applications in China, especially in instances where copper wires would be simply too massive and heavy to carry the same load.

    If we are discussing the future demand for silver for jewelry manufacturing, then every consumer (purchaser) chooses a metal (or combination of metals) to suit his / her pocketbook and preferences. At relatively high gold prices, silver jewelry becomes more affordable and more in demand. Perhaps copper will have a strong surge of popularity. (If you want to see some really beautiful bracelets made of multi-colored metal, check out Sergio Lub. Strange name, very nice, heavy bracelets. I think they are all made of steel and copper, but there are several colors intertwined.)

    But to be clear, the cost of fuel is just one of several main factors, any / all of which go up in price. The tap will not be turned off at any given price point. Rather, consumers will continue to vote their preferences on an ongoing basis, just as they do now. I am of the opinion that fuel costs will play the most important role of valuing silver for industrial demand. I think you are in agreement with me on this point. Your thinking is rock solid, and I’m always impressed with your ideas.

    Industrial demand sets a floor under the silver price. Further, industrial demand is extremely strong in China. Andrew Maguire is quoted as saying, approximately, “Chiner’s gotcher back.”

    Above that, investment demand depends on perception of the degree of rocky times laying ahead. That investment demand could spell much higher prices for silver, and much higher profits for the miners. Jewelry demand is, I believe, in a distant third place, and if the price of silver rises as dramatically as I suspect it will, then jewelry demand is what will break first. Maybe I’m wrong, and silver will become even more of an “in” thing when the price goes way, way up. Perception is everything.

    Meanwhile, as you have stated fuel consumption per ounce is increasing. And also as you have stated, this is because of lower ore grades. It’s interesting that with silver, the richest grades are near the surface, and the deeper the miners dig, the poorer the grades, hence the more tons of rock they have to move and to process to get each ounce.

    The marginal mines, those with the lowest grades and the smallest reserves will be the first to be shuttered. If a mine is at break even or less, and has small reserves, they would have little optimism to keep them going. Because of your analysis, in looking at mining stocks I will pay more attention to AISC and projections of that in future years. I’ll build in an increased amount of fuel cost, while thinking that other armchair analysts won’t be thinking about that.

    Thanks again, Steve.

    Charley Z

  16. OK, where do I start.. First, very interesting analysis, yet the outcomes are complex and unclear. In connection with declining ore grades, high-grading by miners and the recent revelations on near-term oil supply, it is clear that the peak gold is assured between now and 2020. And that is not the most interesting finding — there is more here than just gold and silver ratios.

    Currently there are three large oil producing countries with 10M barrels daily production: Russia (10~11M), Saudi (11~12M) and USA (~12M). We already know where USA production is going in 2020, Saudi is unknown, but Russia has made little-known news in March 2016. The head of ministry for natural resources said during an interview on the matter: “Without new discoveries, conventional oil production will begin to decline from 2020. The share of unconventional oil will rise, and the economics of oil production will seriously deteriorate, also it requires development of new technologies.” There you have it in an official government statement from #3 gold and oil producer: production decrease from 2020, and do not expect miracles. So in 2020, with declining US and Russian oil production, probably also declining gold production, the must be a massive upward pressure on the price. But the tradeable stock of gold is somewhere between 10k and 100k tons, so the price may be contained for many years. On the other hand, there is no such stock of silver, and with declining oil supply the upward pressure will be immediate and uncontainable.

    Yet such situation can scarcely be limited to gold and silver: production of all metals will be affected, which is a very good reason to review the effects on copper and all by-products of primary mines. Some of the metals have very inelastic demand, hence a decline in production of primary metals, combined with upward pressure on value gauges (gold and silver) and unavoidably rising oil price, may exceed both gold and silver, some perhaps even in price terms, not just in percentage of increase. Most interesting!

    Also a bit scary. The latter two generations are simply unable to live in a world of increasing scarcity. All gains made on metals prices are meaningless if the social stability is lost on a massive or even global scale. After all, all the value of precious metals is in their purchasing power, and that implies the other side is willing to part with goods in hope of a better future. Without that there will simply be no offer of goods.

    • Very interesting article. Gold has always been the best money, the good with the lowest declining marginal utility. (“most saleable”-menger).

  17. “the current Gold-Silver price ratio is based on their COST of primary production rather than RATIO of production”. This seems a strange comment, when it is generally agreed that precious metals are determined in the paper markets, which have been admitted to be manipulated.

    So the value of gold of silver in dollar terms in a rigged market, is meaningless.

    In the two hundred years prior to 1874 the price ratio was fairly constant ranging being between just over 14$ and just under 16$. From 1874 transactions in silver in the us were limited to a maximum of 5$ and taxes could only be paid, using gold. So if you were around then what would you want to be paid with? The inflationist would have been against the massive deflation caused by devaluing half of the money supply and so raising the value of the other half. They would have been against theft.
    The bankers got richer and the peasants got were robbed of the their money.

    • robertsinclair,

      While it may seem like a strange comment, it is more or less true. Yes, the metals prices are determined in the paper markets, but do you really think the Fed or other central banks would push the price of gold $200-$500 under its average cost of production???? This would cause traders to come in by the THOUSANDS.

      The price of gold and silver have been tied to their cost of production. Which is why we have the current 70/1 ratio.. or thereabouts.

      However, I have stated several times OVER & OVER that the cost of producing gold and silver are not their true STORE OF VALUE. Because the world has funneled $250 trillion into Stocks, Bonds and Real Estate over the past 50+ years, the value of gold and silver have been artificially kept low.

      The collapse in value of Stocks, Bonds and Real Estate will push the TRUE value of Gold and Silver up to where they should be… IRREGARDLESS of their cost of production.

      steve

      • Steve the natural cost of gold and silver, is in reality, the energy cost of all of the exploration developement, wages marketing etc. In a paper debt based monetary system the price and the natural value is mispriced.I has to be because, the dollars value has to be maintained using derivatives and manipuling the currency markets. Part of this, has to be precious matals price manipulation in the paper market, (after all thats what the paper market is for) please note this quotation:
        We looked into the abyss if the go.d price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now.
        succeeded. The US Fed was very active in getting the gold price down. So was the U.K. – Eddie George, then Governor of the Bank of England, 1999
        Last time I looked as a rough approximation, the us’s monetary base, if compared to the amount of gold supposedly held by the same should equate to a gold price now of around $5000 excluding all of the hidden qe. The price of gold is maintained by force and propaganda is part of this force..
        To maintain this illusion i have no doubt the the mining industriy has to be involved, so mining profitability based on the comex prices has to be a fantasy.
        Its like you said how could they allow the percieved price of pms too make every miner unfrofitable. The oil market will have similar but different intervent, back door loans or subsidies etc.
        The powers that be have to maintain the matrix. Thix video may be of interest:https://youtu.be/Jfd5isYwer0

  18. I love all these words going back and forth!! They keep asking me how much PPM do I own. The answer is not enough. Keep on buying. Like The Donald says “What have you got to lose”

  19. Hi Steve

    Your analysis of the Gold/Silver ratio is great, although I was hoping silver would go higher versus gold but only because my holdings of silver are great v. gold.

    In several of your replies you state “The collapse of stocks, bonds, and Real Estate”; can you elaborate on why Real Estate is included in the collapse – is it because most people will be broke and cannot afford rents or mortgages?

    Thanks for your insights.

    Ryan

    • Ryan,

      First… I believe silver will rise in value compared to go irregardless of supply, production cost and etc going forward. There is just very little physical silver versus most other assets.

      Secondly, Real Estate gets its value from cars, trucks, people and business activity. Once U.S. and global oil production collapses, business activity, moving cars and trucks will fall considerably. Thus, will the value of Real Estate.

      steve

    • Ryan,

      For the most part, Steve is absolutely right about the monetary value of real estate assets.

      After the credit system collapse, comes the destruction of all our current delivery systems. This will render the current organization of our cities totally uninhabitable. High density living requires tremendous quantities of cheap energy to deliver the goods needed to survive. Even if all the cookie cutter neighborhoods could unify to survive there is not enough tillable land in parks and open spaces to grow adequate crops to support the density of housing. This real estate will become totally valueless. As will all of the urban malls, office centers and big box stores that served those subdivisions. Maybe subdivisions surrounding a golf course may be able to make it but it will require intense cooperation and a whole bunch of relearning.

      My recommendation and what I have done personally, is, if you can afford it, buy a small place on as much good land as you can at least 100 miles from the nearest big city and get it ready for full time living. If you can’t afford to buy a second home but have the flexibility, sell your home and move to the country. There you have a much higher chance of survival.

      On the other hand, the little downtowns of cities across America that have been devastated by the likes of Walmart and other big box stores will experience a renaissance of sorts. Their values may be reduced, but they will ultimately retain some value. They will be the new markets of the surrounding farming communities. The ownership of good tillable land will be priceless.

      There will also be small cities along major lakes and navigable rivers that will eventually prosper as we revert to movement of goods to market by ship and the markets that will spring up around them.

      There will possibly be some, not too big, cities that may survive because of local governance or universities, but it will require close proximity to rich agricultural resources.

      We will be going back to the early 1800s style of living. The time to prepare is now.

      SteveW

  20. Thanks for replying steve.
    Gold and silver’s natural value is the cost of finding, mining and marketing the and all of the vast associated costs.
    The market price for the last 100 years or more has been controlled by government either by price controls or more latterly by manipulation, to keep up the dollars value. How is its store of value going to break free of these restrains, without there being a total loss of control by the governments, central banks and collapse of the current paper markets including shares and bonds? If gold rises then arbitrage will cause currency to leave paper and go into gold and possibly silver. Force has to be constantly, applied to keep the current system from collapsing.

    .
    To stop this we have brainwashing by the media and dumbing down of financial awareness in all parts of our society.
    Federal reserve notesfrom the time they were no longer redeemablle in gold were and are a scam and few seem aware of this and their sole purpose is to in debt the holder of the same..

    • For the system to function properly, the criminal ponzi scheme must, end and the law must be re-introdused , protecting property rights and the system of fraudulant credit must end, with the criminals running it being brought to justice.
      Only then will gold return as money and llberty may have a chance. .

  21. Declining liquid energy supplies? Oil is at multi year low. Ever heard of fracking?

    • Charles,

      LOL… you must be new to the site, so I can’t blame you for making that sort of comment. However, if you stick around and continue to read new and archived material, you will find out that SHALE ENERGY was a big waste of time.

      steve

      • Well it HAS resulted in cheap gas for the consumer, and allowed the government & mainstream media to continue spouting their lies about our economic recovery, and put off the coming collapse.

        But now Charles output from fracking is on the decline, and oil companies still fracking are on the decline, with many pulling out or going bankrupt. That is the first lesson on fracking for you, other than the environmental disaster few care about.

  22. The greatest capitel markt has the USA.Big Investors must go to the US market.The 3 big rating agencies are american one.They decide who gets credit and who not.They evaluate investors- thumbs up or down!

    As long as this works nobody can change this system.
    The Ukraine-conflict was made to prevent the european from making a union with the russian.
    They want no strong europe.No union from raw material and technology!
    The inner conflicts in european where strengthened from the USA ,

    Some people say germany is the 51. bunde state.Unfortunately the american average joe has no advantage from this.

    So take a pitchfork and ram into the ass oft those banksters.Or take the middle age penalize:
    tar,feeders,quartered.
    It’s important not to change the sequence!

  23. Will the supposed future shortage of oil be affected by the lowering cost of solar power, batteries, and electric vehicles?

    • Charles Moorehead,

      The supposed lowering cost of Solar is gravely overstated. The only cost that has come down is the cost of the Solar Panels. However, the cost to INSTALL and MAINTAIN these solar projects is still the same as it was 10 years ago, if not more. I have seen many CASH FLOW ANALYSIS on the solar projects in the United States and just about all of them do not pay back their original investment over the 25 year depreciated lifespan of the project.

      The only way these large Solar Projects make some economic sense if there are GOVT subsidies in the construction as well as elevated rates of wholesale electric payments. By that I mean the Power Utilities pay Solar Projects 2-3 times the average wholesale electric rate (from Coal or Gas fired plants).

      Once oil production collapses, how are Solar, Wind or Geothermal projects to be constructed?? It takes the burning of oil, natural gas and coal to make Solar, Wind and Geothermal units.

      steve

  24. Hi steve,

    One observation as you are well aware in europe the petrolprices are very high due very high taxes and vat up to 80% or more, so it looks that govt in europe just creating these artificial high petrol prices at the filling stations as another way to tax the ppl. Whatever the price of oil is these govt will just adjust it and make even more money due the vat %. I just wanted to point out there are other factors in play regarding price of oil. Have you ever followed the latest technology regarding graphene? You be surprised what this technology can do as well in the energy sector.

    http://www.graphene-info.com/

    Another thing do you have any data how much oil is being used for mining uranium it would be intresting to see the correlation between oil price and uranium price if there is any but I expect there would be one.

    rgds
    Pieter

  25. great analysis and insight.

    Clearly we have to find more efficient ways to extract metals from the earth.

    I’m leveraging my experience in the Air Force Satellite world and gold mining in Ghana to work on a philosophy and approach we are calling MicroMining. using operations research techniques I think we can optimize various mining strategies and exploit various opportunities.

  26. This is not criticism, or commentary. I am just making an observation and noting what I know to be facts.

    Gold and silver have been mined for thousands of years prior to the use of the internal combustion engine. Can we extrapolate that mining can and will continue past the use of fossil fuels?

    I went into an old Red Book and found the values for One United States Dollar. The number is .77344 ounces of fine silver and .04837 for fine gold. That gives us the ratio 15.99.

    Next I went to look at the work that Chris Mullen does to get some data. The latest data from Chris on Warehouse inventories for gold and silver. Silver is listed at 164,078,805.262. Gold is 10,920,897.369. That ratio
    is 15.02 ounces of silver for each ounce of gold.

    The spot ratio is 68.17. Next I looked at the trust ratios.

    AIU is 225.39 Metric Tons and SLV is Metric Tons 11281.84.
    That ratio is 50.05

    The SLV/AIU ratio is more similar to the current spot price ratio.

    The warehouse ratio is closer to the AU/AG ratio set by the government when Gold and silver were both cold hard cash.

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