PEAK GOLD vs. PEAK SILVER: Must See Chart

If you are a precious metals investor, you need to see this chart.  Matter-a-fact, this is the first time (to my knowledge) in the history of precious metals analysis that the information in this chart has been made public.  One look at this chart and the investor will see the the huge difference between the cost to produce the precious metals.

In addition, the information in this chart will show why the peak of primary gold production will occur before the peak of primary silver production.  However, global silver production will likely peak soon after world gold production.  Thus, individuals understanding the difference, will likely enjoy a rewarding investment strategy most are currently unaware.

As I have mentioned time and time again, ENERGY IS THE KEY to the value of the precious metals. This goes well above and beyond the percentage of raw energy (oil, natural gas, coal, hydro & nuclear) consumed in the production of an ounce of gold or silver.  Unfortunately, investors do not realize that 90-95% of the value of an ounce of gold or silver is directly related to the amount of energy consumed IN ALL FORMS and IN ALL STAGES in the their production.

Labor is a form of energy.  Upper management pay, is a form of energy (highly skilled energy).  The materials consumed in the gold and silver mining industry get their value from the energy consumed IN ALL FORMS and in ALL STAGES of their production-transportation-distribution.  The mining equipment used in the production of gold and silver also get their value from all the energy consumed in their manufacture (in all forms and stages).

While the market understands that energy is large percentage of the cost to produce gold or silver, they fail to realize LABOR, MATERIALS and EQUIPMENT are all “Energy Derivatives.” Even though labor, materials and equipment are listed as different itemized costs on the precious metals mining company’s balance sheet, they are all ENERGY COSTS when we break them down to their simplest form.

That being said, let’s look at the huge difference in the consumption of diesel in the primary gold and silver mining industry.  I selected Barrick because they are the largest gold producer in the world and Pan American Silver is one of the largest primary silver mining companies.  While other companies such as Fresnillo located in Mexico produce more silver than Pan American Silver, I was able to obtain diesel consumption data from Pan American Silver more readily as they just released their 2014 Sustainability Report.

If we look at the chart below, we can see just how much more diesel is consumed in the production of gold than silver:

Diesel Consumption Barrck vs Pan American Silver

According to the data from the two companies 2014 Sustainability Reports, Barrick consumed 20.8 gallons of diesel to produce an ounce of gold while Pan American Silver only used 0.2 gallons to yield an ounce of silver. Basically, it took Barrick 100 times more diesel to produce an ounce of gold in 2014 than it took Pan American Silver to produce an ounce of silver.

That said, let me clarify a few things.  First, these mining companies state their energy consumption figures in various metrics.  For example, Barrick listed their energy consumption in giga joules and Pan American Silver in cubic meters.  So, we have to make some conversions to gallons to make a comparison.

Secondly, I took all of Barrick’s estimated diesel consumption and divided it by the total amount of gold produced in 2014.  However, I only used Pan American Silver’s five primary silver producing mines to calculate their diesel consumption.  Pan American Silver has two additional mines (Dolores & Manantial Espejo) that produce a great deal of gold.  Thus, these two mines consume a lot of energy, similar to primary gold mines.

Furthermore, the revenue obtained from Pan American Silver’s Dolores and Manantial Espejo Mines was higher in percentage of gold than silver.  So, I omitted these two mines when calculating a more ideal energy consumption metric for the primary silver mining industry.

For those who like to see the actual data, here it is below:

 BARRICK 2014 

Total Diesel Consumed = 129 million gals

Total Gold Production = 6.2 million oz

Diesel consumed per oz of gold = 20.8 gal

 PAN AMERICAN SILVER 2014

Diesel Consumed by 5 Primary Silver Mines = 3.5 million gals

Total Primary Silver Production (5 mines) = 18.4 million oz

Diesel Consumption per oz of silver = 0.2 gals

Yes, it’s true that Pan American Silver produced 26.1 million oz (Moz) in 2014, but remember, I had to subtract the 7.7 Moz supplied by the Dolores and Manantial Espejo Mines as they were more a primary gold mine with silver by-product (or co-product) credits.

Peak Gold vs Peak Silver:  How Will This Play Out?

The question many investors may ask after reading the information above is… What do these figures mean?  This is a good question.  Why?  Because, I believe it will provide some favorable investment strategies for precious metals investors that aren’t presently understood.

One of the things I try to do on my site is to show how energy will impact the precious metals, the miners and the overall economy going forward. However, when I post an energy article, it goes over like a FART IN CHURCH.  My energy articles receive a tenth of the readership compared to some of my more popular precious metal articles.  And this is quite a shame, because ENERGY IS THE KEY to understanding how the world collapses or evolves going forward.

As I stated in a recent article, U.S. Shale oil production already peaked earlier this year.  ITS A DONE DEAL.  So, for all the folks who continue to believe the CRAPOLA put out by the U.S. Govt or MSM that the U.S. is still on track to be energy independent…. WAKE UP, it’s a big lie.

Bakken Peak

Eagle Ford Peaked

With the peak of U.S. Shale oil production already in the rear-view mirror, I believe we will see the peak of global oil production very soon.  Thus, the world will have LESS and LESS oil in the future each year to run the system… and this includes the mining industry.

If we consider that it takes the primary gold mining industry (on average) 100 times more diesel to produce an ounce of gold than the primary silver mining industry, peak oil will impact the gold mining industry a great deal more than the primary silver mining industry. Which is why I believe we will see a peak of primary gold production before primary silver production.

However, that doesn’t mean global silver production will peak many years after primary gold production.  Why?  Because 70% of global silver mine supply comes as a by-product of base metal and the gold mining industries.  As global oil production peaks and declines, it will also cause World GDP to fall.  Falling Global GDP means less economic activity… thus less demand for base metals.

We will see less available diesel for the base metal mining industry, or less demand for the metals.  Either way, global peak silver production will be a result of the peak of base metal mining, not primary silver mining. Matter-a-fact, I actually see growth in the primary silver mining industry for several years after peak oil due to two factors:

1) The relatively small amount of diesel consumed in producing primary silver

2) The skyrocketing price of silver (due to the collapse of fiat money and paper assets) and its positive impact on the primary silver mining industry.

While most analysts continue to push resource stocks as wise investments, there are very few worth owning.  For example, the folks at Stansberry & Associates have been cheerleaders for the U.S. energy industry, and in many cases… the shale energy companies. I have said from the beginning, Shale Oil & Gas Companies (for the most part) are dogs and will continue to be dogs. I just read in a recent Stansberry Portfolio Update the following:

….we are closing the XXX (can’t provide energy stock name) position and will no longer cover the stock. We will record a loss of 153% on margin (31% on capital at risk) in our official portfolio.

I don’t want to seem brazen here, but if some of their investors read my articles on energy FOR FREE instead of paying Stansberry & Associations an ARM & LEG for their investment advice, they wouldn’t have lost 153% of their money investing in one hell of a lousy shale energy company stock.

Now, don’t get me wrong, I am not singling out Stansberry & Associates… as we in the precious metal community deserve some blame for underestimating how long the Fed and Central Banks could prop up the markets and drive the paper price of gold and silver much lower.  However, owning most resource stocks that will only go lower in value is different from owning physical precious metals that will only go higher in the future.

Precious metals investors haven’t lost value in their physical gold and silver holdings, unless they are unwise and sell them now.  This is much different from investing into worthless resource stocks that will only continue to lose value going forward.

Okay, if you follow my drift on why primary gold miners will peak before primary silver miners, the Primary Silver Mining Industry may offer a much better investment strategy in a peak oil environment. Of course, there are no guarantees, but I do see the primary silver mining industry growing for a while, even after the world peaks in global oil production.

I believe silver will become one of the most sought after physical assets to own in the future as the majority of paper and physical assets lose value. This will make the primary silver miners’ margins-profits quite handsome… as well as their stock price. However, if you are going to invest in the primary silver mining “producers” (not explorers), do so with money you can lose.  Make sure you have your nest egg of gold and silver bullion first before you invest some throw-away money in the primary silver miners.

The reasoning here is… if the primary silver mining stock you purchased is either nationalized or shut down for whatever reason in the future, you only gambled money you didn’t need.  This not only allows one to sleep better at night, but it also is a smart way to invest one’s capital.

If you want to get a better understanding of how ENERGY impacts the primary silver mining industry, I would suggest you read the information in my recently released THE SILVER CHART REPORT.  It gives a good background on falling ore grades and yields in the primary silver mining industry as well as how the price of oil impacted the value of silver over the past 100+ years.

PLEASE NOTE: This report is not just made up of charts.  Each chart has a page of explanation.

If you haven’t checked out THE SILVER CHART REPORT, there’s a great deal of information on the Silver Industry & Market not found in any single publication on the internet. There is one chart in this report (Chart #19) that I can guarantee that 99.9% of precious metal investors haven’t seen before.

SIlver Chart Cover Graphic 3D shadowMost analysts focus on a certain area or sector of the silver market. However, the information in this report illuminates a holistic view of many sectors of the silver industry, capturing the relationships that connect many parts of the market.

One of the important aspects of my work is to look at many industries and markets from a bird’s-eye view.  From this perspective, we can see how industries and markets impact each other to a much larger degree than by just focusing on individual sectors.

 CLICK HERE:   For The Silver Chart Report

I use this bird’s-eye approach when I create my easy to understand charts. The Silver Chart Report is a collection of my top silver charts from articles published over the past six years, and includes in-depth, never-before-seen charts and content that indicate that silver is on the rise. There are 48 charts in the report, broken down in five sections.

NOTE Anyone who purchased but did not receive the report, please use the contact page to contact me.

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eva
Guest
eva

It may happen in 20 years. I need a shorter perspective.

Bonifaci
Guest
Bonifaci

Your energy articles are great. I’d say they’re usually too short for me 🙂 I finish reading them willing for more haha

GJH
Guest
GJH

I agree! I wish there were more energy articles.

Walter
Guest
Walter

Hi Steve,

Do you think it’s a good idea to buy major silver miners now (assuming one has their main position in physical), or after the next major market correction?

Thanks.

houtskool
Guest
houtskool

Walter, when energy shortage kicks in, and undermines thw whole iou trillion paper markets in a way that will push the paper price of metals to the ‘moon’; paper trading will be halted. Not only Facebook, but Apple too. And Chevron, GM, trannies, and yes, your favourite junior miner will blow up in your face.

Pocket change in mining stocks. But that’s just me.

Jason
Guest
Jason

Steve, I appreciate reading all of your work. Some say precious metals are the go-to assets for now until they appreciate to a point, while stocks and real estate fall. Do you foresee a time in which it will be appropriate to move pm holdings into other asset classes, or will peak oil wreck other asset classes in perpetuity? Also, do you ever get into price predictions beyond saying metals will be some of the best performers going forward? Thanks for your insight!

Chaplain Dave Sparks
Guest

Or … they could “bootstrap” their energy situation by investing some of that silver into solar energy facilities to run operations, and/or sell the electricity to offset diesel costs.

SteveW
Guest
SteveW

Steve,

One of your best ever posts. Focusing on critical issues, with a concise conclusion.

Thank you.

SteveW

Mark
Guest
Mark

“My energy articles receive a tenth of the readership compared to some of my more popular precious metal articles. And this is quite a shame, because ENERGY IS THE KEY to understanding how the world collapses or evolves going forward.” I do like the energy articles and have learned a lot due to your research. However, you are unique in discussing the concepts surrounding EROI and this is the only site I see that gives it any attention. Gold & silver are topics most know of, but clearly don’t appreciate or understand at all. It still hasn’t sunk in my… Read more »

HYMN
Guest
HYMN

Some of your best work, here, and thank you. I like the (car for twenty or so coins) I’ve been thinking along these lines. Imagine sliding a guy a monster box for his second home on a beach somewhere he no longer wants,needs or can handle anymore. But then I thought, much like Golum of the rings, it’s precious. So i think silver will be the medium for trade and purchases, but no one will want to part with their ace in the hole, their gold. Believing it to be the ultimate safe guard, the get out of this mess… Read more »

Dave
Guest
Dave

Steve, thanks for all your work. I am writing to mention that I believe it is useful to consider the ratio of the value of the fuel consumed in production and the value of the metal. Using $15/oz for silver and $1100/oz for gold, and $3.50 per gallon for diesel, using your energy intensity or embodiment numbers I get 6.62% and 4.67% for gold and silver, respectively. Your data demonstrates (quite obviously) that gold production is more diesel intensive (consumption wise) than silver but without including the price of each commodity, it’s not clear how relevant the difference is. The… Read more »

Dave
Guest
Dave

p.s. I was using the term producers’ surplus in the orthodox economical sense: “the amount that producers benefit by selling at a market price that is higher than the least that they would be willing to sell for; this is roughly equal to profit (since producers are not normally willing to sell at a loss, and are normally indifferent to selling at a breakeven price).”

Jim @ ResilientMan.com
Guest

The whole premise of this argument lies on the higher oil prices. The issue predicting the future is a tricky business. Kyle Bass has been talking about a Japanese crash for 2 years, John Mauldin Even more. Malthus speculated a food crisis in the 1700s. Meaning, that one important variable, the price of energy will determine the price of silver, in the next decade. Beyond that supply and demand, will also play a role. What I have been trying to figure out is a correct way to hedge the silver trade. So if the assumption is that energy prices will… Read more »

Johan
Guest
Johan

I thought everybody calculated energy in there price estimate for everything ! All comeback to energy, in the mining business it is more important that’s why the gold miners had less profit then expected after gold price gone up 5 or 6 times since year 2000. In the gold mining it is even more important because you will pay energy price for hauling waste rock. Like you said labour is also energy and in middle of 2000 the labour energy was not easy available and the price of that energy rise too if you could find it, and if you… Read more »

monte rosa
Guest
monte rosa

“However, if you are going to invest in the primary silver mining “producers” (not explorers), do so with money you can lose”

well….. we try to squeeze something off financial world for the purpose we not rich and we chase to be one at some stage, so usually we risking money we rather don’t want to lose, we survivie without but last thing is loosing this money any way, am i right?

Silvrwillwin
Guest
Silvrwillwin

Steve, Your research and approach regarding where we’ve come from to where we’re going is admirable. There is no one out there that I know of who has focused on this as in the manner that you have . In short order your work should deliver an important insight for many to have a better focus as opposed to the talking heads which are just reaching for repetitive theories or belching out angry words in order to try and prove their points. 2010 feels like yesterday…2020 will come pretty quick. Especially with so many things going on in the economic… Read more »

Joseph
Guest
Joseph

Hi, anyone knows the cost of 20.8 gallon of oil at today’s price?

Kevin
Guest
Kevin

Hi Steve Good information again and I have decided to stick with just physical silver although I was originally thinking of buying some producers. I think the physical metal is just a no-brainer with no counter party risks. I recently heard Andy Hoffman briefly mention the miners possibly becoming nationalized in the future and I thought that was crazy and now I read in your article about the same concern with the miners in the future. Is there an executive order to take over the miners in case of a financial collapse or something? Or is it based on just… Read more »

Paul
Guest
Paul

I am almost finished reading your paid silver report. It is well written, like your articles. After a while, I had to take a break to digest and think about the contents. So many ideas and perspectives I hadn’t thought about. For instance, I didn’t know much about the specific mines. Know I do, and understand more of the bigger picture.

Looking forward to more EROI-articles and the upcoming report.

-Paul
Norway

Centrist
Guest
Centrist

70% of global silver mine supply comes as a by-product of base metal and the gold mining industries. So regardless of diesel output, as precious metals prices and production falls silver as a by-product could start to dry up soon, leading to a much sharper slowdown in silver output. Higher diesel price should also exacerbate the production crunch.

http://www.kitco.com/news/2015-07-31/Silver-Supply-Crunch-To-Push-Prices-Higher-Capital-Economics.html

Centrist
Guest
Centrist

One other thing. I saw on Bloomberg that Peru mining was hit hard when the last big El-Nino hit in 97-98.

Fred Hayek
Guest
Fred Hayek

Steve, do you know why it takes so much more diesel to extract an ounce of gold? Is gold mined at a much deeper below the surface on average? Is it mined in a fundamentally different and much more difficult way? Does it take much more energy to separate gold from mined material than it takes to separate silver?

And are those two companies representative of gold and silver miners respectively?

Save_America1st
Guest
Save_America1st

Steve…just curious what you think or know from any possible research you may have done already…

But is the whole Gull Island deal that Lindsey Williams talks about a total myth? Or is there actually a decent sized deposit of oil there?

Joe
Guest
Joe

Yes, I heard that FART IN CHURCH, aka, I read the article. Interesting take. As energy production cycle turns, mining companies will feel the heat. Chris Martenson has been banging the barrels on Peak energy for a while now.

Rob
Guest

Steve, Thanks for all your great work. I’d like to say that I agree with virtually every point you make. I believe that you would never lead us astray on anything on purpose. I believe that this report is based upon the facts as they have been given you, but I just wanted to make one comment. Please don’t take this as a complaint. I can follow your analysis and I have been reading your blog for quite some time. But I have a hard time wrapping my head around the idea that it takes 100 times more diesel to… Read more »

sculptor bill
Guest

Great information…nice analysis….I’ve known that diesel was an important major expense in mining PM’s,
but I didn’t have any access to thenumbers. Thanks.

Some folks say copper will hit 1.50 1.25 from here in the coming world market collapse, so I imagine that silver and gold auxillary production as a by-product of Cu will diminish along with cut back in copper mining.

Luís
Guest

Thank you Steve for crunching the numbers. Discounting China, world gold mining peaked in 2000. In traditional gold mining countries like the US, Peru or South Africa, mined volumes have been falling around 10% per year (higher ore grades are gone). I have the impression that mining increases the past decade in countries like China or Russia were not supported by prices, i.e. mining in these countries is, and has been, largely uneconomical. While it is tempting to call a world gold peak in 2015, in fact this is a market that does not operate in the same way markets… Read more »