As of Friday, June 7, 2019, the gold-silver ratio was close to 89 to one. Historically, the ratio has been 16 to 1. 90 years ago, gold was $20.67 an ounce, and silver was $1.25, or close to 16 to 1. In the year 1980, the ratio was 16 to 1, but that was when Bunker Hunt was attempting to corner the world’s silver, which he not only failed to do, but went bankrupt in the attempt. What caused him to go bankrupt in his attempt is another story which I won’t go into now. When our customers often ask, “Why the difference?” We mostly say we don’t know, and we really don’t. Now, maybe we will find out why!
Here’s an idea. Let’s see how much it costs to mine silver and gold, to see if their ratios are anywhere near 89 to 1. The cost to produce ratio, may give us a true ratio today, and be a guide as to what to buy.
As far as silver mining costs are concerned, 33 million ounces of silver are produced each year in the U.S. 15 million ounces are mined in Alaska in two mines, the “Red Dog” and “Greens Creek,” both owned by Hecla. The “Rochester,” in Nevada, and “Bingham Canyon,” in Utah, produce a bit less than 7 million ounces. The rest is from by-products of gold and copper mines in Arizona and Nevada, so it is impossible to tell the silver cost from these mines. Hecla’s “Greens Creek” and “Red Dog” are almost pure silver mines, so we can tell the true cost of mining silver from those mines. In 2017, Hecla’s ‘positive free cash flow,’ was $18 million. This is profit after expenses. Divide that by 112.5 million ounces, and it is a profit of $1.44 per ounce of silver mined. Add that, other expenses, and the total cost of silver mined in 2017, was about $15.80 per ounce.
Gold mining is far different than silver mining. Gold producers have what is known as “IMP” or ‘investment in mining properties,’ which is in the billions each year by all mining companies. In other words, it seems as though silver is far easier to come by than gold, or gold mines wouldn’t have to spend billions to find new mines. Examples of what some major mining companies spent for “IMP ”in one year are: Barrick – $23 million, Gold Corp – $112 million, and Newmont – almost $19 million. Still, as of 2012, with Gold Corp, one of the majors, their total cost to mine an ounce of gold was $874 per ounce, including the “IMP,” and all other expenses. I can only assume that the cost today is similar, but I have found no statistics.
Take the $15.80 cost to mine an ounce of silver and $874 to mine an ounce of gold, and the gold-silver ratio comes down to about 55 to 1, from about 89 to 1, or a difference of 34. This makes silver, according to figures I have obtained, a better buy than gold, by 34 ratio points. Why was it 16 to 1 for centuries, and not now? Probably, miner’s salaries and costs, insurance, government meddling and inspections, utilities, property and other taxes, etc. To make the 34 point difference come home even more emphatically, it appears as though silver is damned cheap, compared to its cost to mine, vs. gold’s cost to mine. It just requires 89 times as much storage space. Maybe this will help you decide. David, Melissa, and Morgen are happy to help when you decide, but do not store wealth in paper currencies of any kind! don@coloradogold.com