How Rare And Undervalued Are Gold and Silver?

February 28, 2001

price of goldMetals, such as gold and silver were transferred from the earth's mantle to the earth's crust by igneous (volcanic) activity which started in the Precambrian era and continues to this day. Today, most volcanic activity is related to the recycling of crust as it descends down ocean trenches, heats then melts and re-emerges in volcanic chains like the Cascades, where Mt. St. Helens is located. If you go back far enough in time, all rocks on the earth were igneous because the earth's crust formed from this cooled molten material. Presently, there are three rock types: igneous (formerly molten rock), metamorphic (formed by heat and/or pressure), and sedimentary (formed by water or wind action in lakes, streams, sand etc.). Because most of the earth is made up of igneous rock, and since metamorphic rock, sedimentary rock, soils and the entire crust ultimately formed from igneous activity, the average element occurrence in igneous rock will be used to demonstrate gold and silver's relative scarcity compared to other metals.

The following chart demonstrates how rare gold/silver are in relation to other metals (taken from Rare Earths by Dr. Joel Wallach):

Ru (ruthenium) 0.001 ppm
Rh (rhodium) 0.001 ppm
Ir (iridium) 0.001 ppm
Os (osmium) 0.0015 ppm
Pt (platinum) 0.003 ppm
Au (gold) 0.004 ppm
Re (rhenium) 0.005 ppm
Pd (palladium) 0.01 ppm
Ag (silver) 0.07 ppm
Hg (mercury) 0.08 ppm
Bi (bismuth) 0.17 ppm
Cd (cadmium) 0.2 ppm
Sb (antimony) 0.2 ppm
In (indium) 0.30 ppm
Cs (cesium) 1 ppm
Mo (molybdenum) 1.5 ppm
W (tungsten) 1.5 ppm
Ta (Tantalum) 2 ppm
Sn (tin) 2 ppm
Hf (hafnium) 3 ppm
Ge (germanium) 5.4 ppm
Pb (lead) 12.5 ppm
Ga (gallium) 15 ppm
Li (lithium) 20 ppm
Nb (niobium) 20 ppm
Sc (scandium) 22 ppm
Co (cobalt) 25 ppm
Y (yttrium) 33 ppm
Cu (copper) 55 ppm
Zn (zinc) 70 ppm
Ni (nickel) 75 ppm
Rb (rubidium) 90 ppm
Cr (chromium) 100 ppm
Zr (zirconium) 165 ppm
Sr (strontium) 375 ppm
Ba (barium) 425 ppm
Mn (manganese) 950 ppm
V (vanadium) 1,135 ppm
Ti (titanium) 5,700 ppm
K (potassium) 20,000 ppm
Mg (magnesium) 23,300 ppm
Na (sodium) 23,600 ppm
Ca (calcium) 41,500 ppm
Fe (iron) 56,000 ppm

The central core of the earth is mostly iron and large amounts of iron exists in the mantle, hence the large percent of iron in igneous rock.

The following chart demonstrates how rare gold/silver are in relation to the rare earth elements (taken from Rare Earths by Dr. Joel Wallach):

(rare earth)
Au (gold) 0.004 ppm
Ag (silver) 0.07 ppm
Tm (thulium) 0.48
Lu (lutecium) 0.5 ppm
Tb (terbium) 0.9 ppm
Ho (homium) 1.2 ppm
Eu (europium) 1.5 ppm
Er (erbium) 2.8 ppm
Dy (dysprosium) 3 ppm
Yb (ytterbium) 3 ppm
Gd (gadolium) 5.4 ppm
Sm (samarium) 6 ppm
Pr (praseodymium) 8.2 ppm
Nd (neodymium) 28 ppm
La (lanthanum) 30 ppm
Ce (cerium) 60 ppm

Breakdown of gold occurrences in the earth: igneous and sedimentary rocks at 0.004 ppm (4 parts/billion); fresh water at 0.00006 ppm (60 parts/trillion); sea water at 0.000011 ppm (11 parts/trillion).

Breakdown of silver occurrences in the earth: igneous and sedimentary rocks at 0.07 ppm (70 parts/billion); fresh water at 0.00013 ppm (130 parts/trillion); sea water at 0.0003 ppm (300 parts/trillion).

After close examination of the above tables, it is apparent that gold and silver are very rare metals. Both are scarcer than the rare earth metals. Only a few elements, including the following Platinum group metals Rh, Ru, Pt, Os, Ir are scarcer than gold. For comparison, gold is ~14 million times rarer than iron, the second most abundant metal found in the earth's crust. Because they are so scattered in the earth's crust and waters, much of the gold and silver that exists on the planet is economically unavailable. On average, it would take one billion pounds of igneous rock to recover ~70 pounds of silver (0.0023 troy oz Ag/metric ton), and the cost of recovering silver at such low concentrations would be astronomical. It is estimated that 8.5 million tons of gold are suspended in the world's oceans, yet several million gallons of ocean water would have to be processed to recover one troy ounce of gold, making gold recovery in the ocean economically unfeasible. In Canada, for every 1200 gold occurrences in rock (many of these do not contain enough gold to fill your teeth), only 1 "hard rock" economic deposit will result. Small time prospectors panning for placer gold in South America, Mexico, Philippines, Zimbabwe, Tanzania and other parts of the world are lucky to find a fraction of 1 gram of gold/day. To find gold or silver in economic quantities, gold and silver bearing veins/placer deposits must be found. Known deposits are being depleted at ever increasing rates, while new deposits are becoming more difficult to find. I personally believe that one of the reasons major mining companies like Anglo and Barrick are not lobbying for higher gold prices is because it is cheaper for them to purchase bankrupt producers for their reserves, then to identify and develop the diminishing number of new deposits.

The following table demonstrates silver/gold prices adjusted for their relative occurrence vs other metals:

metal closing price on 2/22/01 on LME/comex (USD/lb.) X (times) more abundant than silver X (times) more abundant than gold silver price adjusted for relative occurrence (USD/troy oz.) gold price adjusted for relative occurrence (USD/troy oz.)
Cu (copper) $0.79/lb. 785 (55/0.07) (ppm from table) 13,750 (55/0.004) (ppm from table) $42.52/oz. (785x0.79/14.583) ratio x$Cu/14.583 $744.87/oz. (13,750x0.79/14.583) ratio x$Cu/14.583
Pb (lead) $0.224/lb. 178 3,125 $2.73/oz. $48.00/oz.
Ni (nickel) $2.81/lb. 1,071 18,750 $206.37/oz. $3,612.94/oz.
Sn (tin) $2.309/lb. 28 500 $4.43/oz. $79.17/oz.
Zn (zinc) $0.457/lb. 1,000 17,500 $31.34/oz. $548.41/oz.
Pt (platinum) $8735.22/lb ($599/oz.) 0.0429 0.75 $25.70/oz. ($599x ratio) $449.25/oz.
Pd (palladium) $12687.21/lb ($870/oz.) 0.1429 2.5 $124.32/oz. $2,175.00/oz.
Rh (rhodium) $33540.90/lb ($2300/oz.) 0.0143 0.25 $32.89 $575.00/oz.
Ag (silver) $64.748/lb ($4.44/oz.) N/A 17.5 N/A $77.70/oz.
Au (gold) $3811.267/lb ($261.35/oz.) 0.0571 N/A $14.92/oz. N/A
Average price N/A N/A N/A $53.91/oz. (12.1 times 2/22/01 comex price) $923.32/oz. (3.5 times 2/2/01 comex price)

1 avoirdupois pound=14.583 troy ounces

Naturally occurring ratios of silver and gold to other metals will vary, but the law of averages will tend towards the ratios given in the table.

The above table demonstrates how depressed current gold and silver prices are. Silver at $53.91/oz and gold at $923.32/oz would more closely represent free market prices, than the February 22, 2001 depressed prices. If the supply of gold and silver exceeded demand , then the 2/22/01 prices would be understandable. Gold and silver, which are valued for their scarcity, and their unique physical and chemical properties which make them valuable in industry, medicine, art, jewelry and especially as money and stores of wealth, are actually in chronic supply deficits (gold as high as 2000 tons/year, and silver as high as 250 million ounces/year over the last 10 years). If the base metal prices are suppressed (to mask inflation), than recalculated gold and silver prices would be even higher.

The media's excuse for the current low gold and silver prices includes: (1) over abundance of gold and silver, (2) that some gold and silver are byproducts of base metal mining, and these mining companies don't mind selling their gold and silver at current low prices, (3) poor demand. There is considerable evidence that other factors are suppressing the gold and silver prices which includes: physical shorting, leased metal, producer hedging, official gold and silver sales, and paper gold/silver (which include contracts, certificates, derivatives and exotic hedging schemes). Failure of these price suppression techniques, along with the M3 money supply exploding up, increases in inflation, fewer mines coming into production/mine closures because of depressed metals prices, above ground gold/silver supplies being used up, market bubbles, the energy crisis, the Middle East crisis, gold/silver in chronic supply deficits and especially because of the huge short positions in both metals, will at some time in the future cause gold and silver prices to explode up.

Donald Poitras

28 February 2001

Editor's Note: If indeed gold were common, why would Fed Chairman, Alan Greenspan, have uttered, "Central Banks stand ready to lease gold in increasing quantities should the price rise"?

Nevada accounts for 75% of U.S. gold production.
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