Peak Oil is You

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Page added on July 31, 2015

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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


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.


22 Comments on "PEAK GOLD vs. PEAK SILVER"

  1. Nony on Fri, 31st Jul 2015 3:03 pm 

    Too complicated. Did not read.

  2. SugarSeam on Fri, 31st Jul 2015 3:27 pm 

    “Too complicated. Did not read.”

    Are you F’ing serious? You needed to announce 1) your incapacity to understand, as well as 2) your refusal to read?

    1) ok, fair enough
    2) who cares?

  3. Plantagenet on Fri, 31st Jul 2015 3:32 pm 

    This is just a come-on to buy stock in silver mining companies.

  4. Cloud9 on Fri, 31st Jul 2015 3:53 pm 

    This is an interesting analysis that supports the obvious that gold is more valuable by weight than silver. The average gold to silver ratio has been 27.28.

    Gold has been known to get a person on the last boat out.

    My gut tells me that during the coming dark age, it will have limited value. During the middle ages it will once again come into its own.

    Gold is the currency of kings.
    Silver is the currency of merchants.
    Debt is the currency of slaves.

  5. Jimmy on Fri, 31st Jul 2015 4:10 pm 

    I invest in physical stores of precious metal. And by precious metal I mean ammo.

  6. peakyeast on Fri, 31st Jul 2015 5:19 pm 

    I wonder if IS oil production is counted into the official global production. 🙂

  7. Davy on Fri, 31st Jul 2015 5:22 pm 

    Jimmy, so you rip the war pigs a new one constantly when you yourself are a gun pig. Friggen chill jimmy joe.

  8. Jimmy on Fri, 31st Jul 2015 9:22 pm 

    What would you have me do Davy, wait for the cavalry to show up? The war pigs are greedy. I’m concerned with self preservation. You’re obviously a fanatic.

  9. Newfie on Fri, 31st Jul 2015 9:35 pm 

    Invest in canned food. Buy it by the truckload. It will be worth more than all the gold and silver in the world when starvation sets in. You can’t eat “precious” metals.

  10. Makati1 on Fri, 31st Jul 2015 9:43 pm 

    Another ad full of bullshit. Not worth reading.

    Stopped at: “…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.” Pure BS.

    So, if a Chinese miner digs the ore at $1 per day, that means gold/silver is valued at that level? What about the miners that make $120 per day in another country? Ditto for the processing. Labor rates all along the line are very different. Even energy rates. Gold mined when oil was $35 is worth less than gold mined when oil was $!00? DEMAND determines the value, just like everything else.

  11. Jimmy on Fri, 31st Jul 2015 10:59 pm 

    @ newfie. Agreed! If gold ever hits $5G/ounce like these dreamers think it will we’re screwed anyway. We’d each be better off under those $5G/once market conditions with a watering can and a pack of seeds. Holding a bunch of jewelers metal is a strange idea. I opt for seeds and hunting/gardening supplies with a bit of canned to get me over the hump.

  12. Boat on Fri, 31st Jul 2015 11:48 pm 

    Canned food will kill ya on salt content alone. So thats the solution to degrowth.

  13. Mike on Fri, 31st Jul 2015 11:51 pm 

    Water will be worth more than gold, silver and oil combined. We cannot live without water.

  14. Makati1 on Sat, 1st Aug 2015 4:04 am 

    Mike, true, but of the guy with the water wants to sell it and you ain’t got the price …

    Once you are covered with the necessities, gold is a good historical source of reserve wealth for the rest of your financial resources. After all, if you are forced out of your ‘cave’ by a tribe with machine guns or mortars (they are not going to disappear with the crash. They will likely just change hands) how much canned stuff/water can you carry? But you will never notice a few ounces of small gold coins in your pocket.

  15. ulenspiegel on Sat, 1st Aug 2015 6:45 am 

    The analysis is too one-sided. While energy demand for production is an interesting aspect, another is the usefulness of certain noble metals in industrial processes. Here gold is not that impressive.

  16. paulo1 on Sat, 1st Aug 2015 8:20 am 

    Good article, imho, but I agree with ulenspiegel. Hype is hype based on fear of the future = my buddies who buy precious metals (not physical, but ETFs which I think is nuts). Anyway.

    Me? Drilled well, home by river, land for most of our food production, tools tools tools, fastener stores, and guns + ammo. And lots of firewood, etc.

    Next week we are hosting a big barbecue and potluck for a fine group of friends. Maybe the relationships are the most precious of assets to enjoy, plus, it is fun to eat food and drink with others.

    No gold to be found other than in some fillings/crowns when the smiles hit.

  17. Boat on Sat, 1st Aug 2015 9:40 am 

    Who will drain the dams, shut down all the power plants. With no police not many will get a chance to leave town. Like the almost 9 million in NY alone. If you want to talk about survival in a doomsday collapse scenario your drinking unicorn piss if you think you won’t be taken out very quickly.

  18. Davy on Sat, 1st Aug 2015 10:27 am 

    What does unicorn piss smell like? I guess if you are a corn like boat it would be like peach juice. I am a doomer and doubt the existence of unicorns.

  19. Boat on Sat, 1st Aug 2015 11:02 am 

    If you think you can escape an apocalypse living 2 1/2 miles from a nuke plant. You already drank to much.

  20. Apneaman on Sat, 1st Aug 2015 1:04 pm 

    Global demand for gold is another threat for tropical forests


    The current global gold rush, driven by increasing consumption in developing countries and uncertainty in financial markets, is an increasing threat for tropical ecosystems. Gold mining causes significant alteration to the environment, yet mining is often overlooked in deforestation analyses because it occupies relatively small areas. As a result, we lack a comprehensive assessment of the spatial extent of gold mining impacts on tropical forests. In this study, we provide a regional assessment of gold mining deforestation in the tropical moist forest biome of South America. Specifically, we analyzed the patterns of forest change in gold mining sites between 2001 and 2013, and evaluated the proximity of gold mining deforestation to protected areas (PAs)…..”

  21. energyskeptic on Sat, 1st Aug 2015 5:27 pm 

    If you don’t subscribe to Science, I’ve posted their “Peak Gold” article, s the World Tottering on the Precipice of Peak Gold? by Richard A. Kerr. Science 2 March 2012: Vol. 335 no. 6072 pp. 1038-1039 at

    I’d rather have a hand-pumped well, an acre of class 1 topsoil, and so on than gold myself…

  22. Davy on Sat, 1st Aug 2015 5:36 pm 

    Energy, what if you could have both. I believe in a diversified prep portfolio.

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