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

by Steve St. Angelo, SRSRocco Report:

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:

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:

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:

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

  • anon

    I think he meant the “16 to 1” silver to gold ratio. Not 160 to 1.

  • KRELL427

    What is something worth when every fiat dollar produced is rushing to acquire it?

    • glitter 1

      Something to keep an eye on/watch very carefully,during the 2008 Lehman event/market crash something not witnessed before/since,especially in the mining shares,when the greatest part of the selloff was in progress the miners would reverse suddenly and melt up in price(10/20.30% daily) then suddenly dive down to lower lows.

      Thinking back about these wild swings I remember the pundits remarking never seeing this before.It is my guess that what was witnessed that the big boys/banks,would spike the prices way up,which would draw in the dumb money chasing momentum then they would spike it down clearing the table as they exited positions.This pattern kept up all the way to the bottom until they couldn’t draw in any more suckers then Lehman was scuttled.

      Now,are the European Banks/CBs buying up mining shares in order to buy up tangible assets in preparation for a currency event or as Jeff Nielson speculates they are biding up the shares in preparation to making it easier to slam down the longs along with a G&S/broad market crash,just as in 2008/09.There are many similarities to this market run up as far as leading up to/after 2008/09.Could be from the same play book.

      Will gold and silver sell off with the major market averages as in 2008/09 this time around?Time will tell.However,there is much less physical metals available compared to 2008/09,so the subsequent physical shortages will be more acute,driving the premiums way up just as during 2008/09.Either way G&S pricing will rocket if for nothing more than the shortages/premiums.

      I think we are approaching “Go Time”.

  • Craig Escaped Detroit

    The article was informative, and the fact that for some important sectors of mining, it takes 32 gallons of diesel fuel (off road diesel costing about $2.50 per gallon right now) versus 0.20 gallons of diesel to (primary) mine an ounce of silver.

    So the FUEL ratio actually is 160-1.
    So I just looked up the conversion of 1 gallon of diesel fuel into kw-hrs of electricity, to understand how much it might cost if a mining operation was using electric machinery instead of diesel fuel.

    Considering how there are so many big power transmission lines running across so many countries, and aluminum smelters run totally from the power grid, it’s not far fetched to consider running the mines with all electric (and this would reduce the toxic fumes and some of the fire hazards, improved air ventilation, noise, and result in less upkeep of engine repair, etc).

    1 gallon of fuel = 40 kw-hrs. (typical RETAIL price for grid power, is 10-14 cents per kw-hr would cost MORE than today’s off-road (non taxed) diesel fuel…about $4.50 per “gallon equivalent”.

    So, it won’t be economically wise to switch to electric machines, until the price of the “electric fuel” is the same or less than the “liquid fuel”.

    I was curious at what point, it might be economical for a mining operator to have a solar or wind farm to run the machines. The WHOLESALE price of grid power, is about 4 to 6 cents per kw-hr. So if a miner could buy at the wholesale price, the energy costs would be the same.

    Then it would come down to which form of energy would be cheapest to get “transported” to the mine site? Diesel comes on freight cars or tanker trucks, and grid power comes on a transmission line. (there may be a few, large, long term mining operations that gets their liquid fuels from a direct pipeline.)

    A 1MW solar farm typically would output the equivalent of 4.3 million gallons of diesel fuel each YEAR. (that’s taking the US government annual average output, balancing out day/nite/sun/rain/summer/winter.)

    Converting the energy output of a 1MW solar farm to how many ounce of PM’s could be mined, it would be 135,000 ounce of gold or 21 million ounces of silver per year.

    Here is another possible benefit of the solar farm, is that when it is no longer needed at the mine site, it can be moved to the new mine site, and if it’s NEVER needed for mining, it can be used to produce and sell “grid power” at the same price rates, to the retail customers or other industrial purchasers.

    • Eric

      Craig, this article just makes me think that it’s all the more reason to get your $25 gold pan, start looking at some maps, and panning those streams.

      China has all the Gold. The US gets the Silver. Looks like we are going to have to pan it out of the national parks from here on unless you have fiat to burn on one ounce.

      31.10 grams to the ounce. Go for the grams!

      • Craig Escaped Detroit

        @Eric, How about suctioning out (dredging) all those “riffles” in the CORRUGATED drainage ditch culverts that go under roads, bridges, walkways, etc?

        Some good Youtube videos about that. All those rain storms that drag dirt and must down the drainage system, and thru the corrugated pipes under the roads. I love it.

        Of course, free gold (and silver) is the side benefit of working as a mortician as well as at the city morgue. (I’m sure this happens all over the world.) I imagine that every gold crown has about $50 of gold (or more)? Finding a gold bridge would be the jack-pot.

        And the crematorium workers get to mine the ash pit for all the left over gold too, unless those are removed prior to cremation?

        Gold TEEF are more common among the BLM people.

        • Eric

          I got 2 gold crowns not long ago. Not sure how much gold is in them but they cost me $300 each to upgrade from the porcelain crowns. Drainage ditch culverts and such aren’t the best areas to look, but there is some success with those. Most of the Gold in the hills is out west here. But there are loads of resources online. A search for “gold maps” should bring up some stuff to check out.

          In your area, I’d be looking for more “lost treasure.” Especially if you head toward the coast with a metal detector. I have a stack of lost treasure maps and resources and remember a ton of sunken treasure off the coast of Florida that still hasn’t been recovered.

          Look up the history of your area. You never know who or what was there in the past.

          • Craig Escaped Detroit

            Lost treasure beach finds sounds like fun. Yes I have a metal detector (my 4th). It’s decent but probably not for salty locations, I’ll need an upgrade.

            Never found anything of real value, but gold fever is always contagious, eh?

            I did better when salvaging thru abandoned, gutted homes before the demolition crews arrived.
            100 empty mason jars one week, a couple of full size pressure canners during the fall, and a dozen cases of unopened Depends adult diapers with 12 paks per case, retail price of about $180 per case. Found a pound of weed once, left it there, didn’t dare risk losing my own freedom over it. Best find was sterling silverware, scrap value of about $500.

  • AgShaman

    Somebody else controls the ratio…they are not our friends.

    People should have both

  • KRELL427

    Just listened to Keith Neumeyer interview on silverdoctors, he made an interesting point. when he got into the silver industry it was coming out of the ground at 15:1, today that number is 9:1 and going down at a time that silver demand is increasing. http://www.silverdoctors.com/precious-metals-market-podcast/first-majestic-silver-first-mining-finance-ceo-keith-neumeyer-gold-and-silver-bull-market/

  • Too bad this isn’t all it takes to mine silver. Capital costs to get to the silver need to be included and the cost of labor needs to be added as well.

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