Gold and Silver Valuations. Why they can be confusing. Avoid overthinking and keep it simple.
February 26, 2022
Everyone is trying to get an advantage on what are the best investment plans of action. In a typical day there are hundreds of opinions on how to determine the future of an investment class. This publication focuses on Gold and Silver so we will stay in that lane. Let's dive into the variety of opinions surrounding precious metal valuations and see if we can discover methodologies that make sense.
Media sources like Seeking Alpha, KITCO, Stansberry Research, CNBC, Yahoo & Bloomberg are examples of Mainstream Media but they always have "conflicts" and play both sides of the narrative. They run stories like "Gold is going to $0.00" and hit pieces on precious metals sponsored by convicted felons (JP Morgan) and hedge funds. How could gold go to zero when companies like Newmont, Barrick have a $1,350 price per ounce cost of production and they return dividends to their share holders?
Superior sources for gold & silver news are personalities that have launched YouTube channels. There are dozens of them. Some popular ones include David Morgan's "The Morgan Report," Lynette Zang's "ITM Trading," Joseph Brown's "Heresy Financial," Jim Lewis and Ivan Bayoukhi's Wall Street Silver," Mario Innecco's "@maneco64," Palisades Gold Radio, Charlotte McLeod's "Investing News Network" Rafi Farber's "End Game Investor," "Finding Value Finance" and dozens of others.
What's Confusing about Gold and Silver Valuations?
George Shaw said it best, "If all economists were laid end to end, they would still not reach a conclusion."
Shaw's quote conveys the subjective nature of market forecasting. Most of us have not dedicated our lives to studying the market. Moreover, each of the following variables are "rabbit holes" in themselves. Who can really boast they know all there is to know about:
Support and Resistance
Simple Moving Averages
Long, Medium and Short term averages
Moving Average Crossover
Reversal and Redistribution
The Elliott Wave Principle
Head and Shoulder Reversal Pattern
Double Top - Double Bottom chart patterns
Fibonacci Correlation This is Confusing. No one has time to dissect all of these sub-disciplines
Moreover, it's hard to figure out the role emotions have within investment strategies. The prime emotions are fear and greed. Behavioral actions linked to fear and greed also include caution, confidence, euphoria, complacency, pessimism and panic.
Later I will touch on manipulation and disclose best practices countering manipulation.
This article is taking a breather from all the "technical experts" by learning another viewpoint. Few analysts discuss Gold & Silver related to Energy. We will be looking at the work of an independent researcher and publisher named Steve St. Angelo
Technical analysts examine the price action of the financial markets instead of the fundamental factors that (seem to) effect market prices. So what is more comprehensive?
Steven St. Angelo offers proper historical context and teaches that Energy is the main driver of pricing.
St. Angelo offers some new historical theories when comparing the Bronze Age, Iron Age and Roman Empire. We paraphrased below, "During the peak of the Roman empire Romans cut down 100 million metric tons of wood to produce about 10,000 metric tons of silver. Lumber was the fuel for smelting silver. Throughout the Roman Empire if we include iron production, copper production, gold production, it required massive amount of trees to make charcoal to smelt these metals. It wasn't just wood needed to smelt metals. The ships they made for shipping people and materials and the military also used wood. Their construction materials were brick, stone, concrete, metals and wood. They used more than a billion trees. The reason Romans went to Germanic regions was because they had depleted their wood supply. They needed more fuel.
Same thing occurred during the Bronze Age. The collapse of the the Roman empire wasn't the debasement of their silver coins (money supply) or Denarius, that was the symptom. The height of their silver production corresponded with the peak in their wood fuel energy return on investment. They didn't run out of silver ore they ran out of wood."
A beautiful 3,500 year-old rock crystal vessel in the shape of a duck From Bronze Age. Discovered in Mycenae Greece. Emphasis - In all these eras, Bronze Age, Iron Age, Roman Empire, each needed wood. Wood needed to create charcoal. Charcoal needed to fuel. Smelters melt silver. Kilns required for glass, ceramics, pottery, tiles and clay fired masonry units (bricks)
Energy Return on Investment. Charles Hall one of the founders of EROI theories.
Stephen St. Angelo continues, "Oil exploration exploded in the 1920's and 1930s. This started in California, Oklahoma & Texas corresponding with automobile mass production. The geological pressure of these oil wells were very high because they had never been released. Back then the energy return on investment was the baseline, a 1:1 ratio. Over subsequent years when examining different regions and extraction methods the ratio gets worst and it becomes more costly." (e.g the ratio for oil sands is 5:1 for tar sands 4:1)
Charles Hall said our modern economy needs an Energy Return on Investment of oil
not to exceed 12:1.