Steve St. Angelo: Energy Crisis will Drive Gold to New Highs
Tom welcomes back Steve St. Angelo of the SRSrocco Report. Steve discusses how energy can impact the price of gold and why it essentially sets a floor for the metal. The foundation of our global economy is the cost to produce goods and there has to be a profit margin. Everything has a margin but unfortunately, investors often forget this factor when evaluating charts.
Everything comes down to energy from the construction of a mine, to labor, and finally, actually producing the metal.
Steve contrasts the money supply with the price of gold and suggests there is a different driver for the gold supply. Gold tracks very well with the price of crude oil. Currently, gold is higher than oil and many miners are making good profits.
Gold has been getting harder to mine and grades have steadily declined. Today, $1350 is about the cost of production for most mines.
We’re not going to run out of oil. The concern is what is economically recoverable based on the energy invested to produce it. This is the energy return on investment. When energy prices get too high entire parts of the economy slow or shut down.
Steve takes a deep dive look into the historic cost of production at various mines including Barrick, Newmont, and Homestake. High production costs tend to push the price of gold up due to the marginal cost.
Cost of production is one possible reason why silver has not performed as well as gold. However, as we reach the energy cliff the metals are going to outperform.
Steve discusses the U.S. average oil production over the past century and the impact of shale oil. The world is unlikely to add much oil production in the coming decade. As a result, there will be an energy deficit that will limit global economic output.
Lastly, he demonstrates the problems with debt on oil production and how it doesn’t necessarily increase the overall amount of production. Instead, it creates conditions for a rapid peak and fall-off in production. We’re entering a period of unsustainable green technology and most people believe that technology will solve all the problems. However, we can’t continue to grow in an energy-scarce environment and that will drive institutions into the safety of metals.
Talking Points From This Episode
- Why the cost of production is an often-overlooked metric with charts technical analysis.
- How gold tracks the price of oil quite closely.
- Miners and the overall costs of production for major mining companies.
- Why debt availability has little impact on the overall amount of energy production in the oil sector.
Time Stamp References:
0:00 – Introduction
0:40 – Energy Prices & Gold
6:40 – Gold & M2 Money Supply
10:01 – Gold Vs. Crude
14:20 – Gold Vs. WTIC
22:23 – Homestake Costs
26:56 – The 70s & 80s Oil Shocks
30:28 – China & Energy
34:22 – Barrick & Newmont
40:00 – Operating Margins
43:55 – Silver Vs. Gold
54:29 – Gold Cycles
57:43 – Long-Term Oil Production
1:01:35 – Debt & the Energy Curve
1:07:08 – Oil & Green Tech
1:11:20 – Concluding Thoughts
Energy Cliff Video: https://www.youtube.com/watch?v=wwDQ5iorYxc
Independent researcher Steve St. Angelo (SRSrocco) started to invest in precious metals in 2002. Later on, in 2008, he began researching areas of the gold and silver market that, curiously, most of the precious metal analyst community have left unexplored. These areas include how energy and the falling EROI – Energy Returned On Invested – stand to impact the mining industry, precious metals, paper assets, and the overall economy.
Steve considers studying the impacts of EROI one of the most important aspects of his energy research. For the past several years, he has written scholarly articles on some of the top precious metals and financial websites.
You can find many of Steve’s articles on noteworthy sites, such as GoldSeek-SilverSeek, Market Oracle, Financial Sense, GoldSilver.com, SilverDoctors, TFMetals Report, Outsiderclub, SGTreport, BrotherJohnF, Hartgeld, Der-Klare-Blick, PeakProsperity, SilverStrategies, DollarCollapse, FurtureMoneyTrends, Sharpspixley, FinancialSurvivalNetwork, PMBull, Deviantinvestor, PMBug, Wealthwire, and ZeroHedge.