Steve St. Angelo | Study Oil To Learn Where The Gold Price Is Headed

Independent researcher Steve St. Angelo ( started to invest in precious metals in 2002.  Later in 2008, he began researching areas of the gold and silver market that, curiously, the majority 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 in some of the top precious metals and financial websites.

0:05 Introduction

2:12 Steve’s “Energy Returned on Investment” (EROI) thesis

6:34 If EROI is accurate, what’s the impact on society?

8:19 Nuclear power and the EROI theory

11:26 Will society continue to advance if the EROI theory is true?

12:50 Mining trends Steve focuses on

14:47 Can’t price inflation solve the EROI problem?

17:24 New source of energy could solve the EROI problem

20:47 Silver price forecast and analysis

22:39 EROI and the future price of silver


Bill: Well, joining me today is one of the most popular online independent researchers when it comes to precious metal investing analyzing the major miners and the oil industry. I’m speaking about Steve St. Angelo. He is a proprietor of It’s his first time on my show. But I have read his reports for probably a decade, listened to numerous of his interviews. So I asked him to come on, to engage the Mining Stock Education audience. With that being said, Steve, welcome to the show.

Steve: Bill, it’s great to be here. A lot of interesting things happen in the market, so I think we’ve got plenty to talk about. There’s no shortage of things to talk about.

Bill: Absolutely. And what I appreciate about your analysis, Steve, is that you don’t simply regurgitate what other people are saying and repackage it to your audience. But you come out with very generative, unique analysis of what’s going on. Share with our listeners as we kick off this conversation, what are the inputs and assumptions that go into the formula which produces your analysis of what’s going on let’s say in the gold market?

Steve: Well, you know Bill, I first started looking at the precious metals. I was interested in precious metals. So a lot of people would say, well, I’m a precious metal guy. And then I started reading about energy because I understood energy was a very important dynamic. And then they said, “Well you’re an energy guy.” Well, I’m neither of those. I’m an analyst.

And I try to get to… You’ve got to get to the bottom. You’ve got to get to root, the root cause. And to get to the root cause of what’s happening in this world, you have to focus on the energy because without energy, if you don’t have gasoline in your car, you don’t get to work. If you don’t have electricity, you turn the switch on, the lights don’t come on. The manufacturing plant can’t produce its products. And then all this stuff has to be transported all over the world. So if you don’t focus on energy, most analysts are missing the most important factor.

So what I look at is energy production for like gold mining industry as well as all industries. I look at oil production, the cost of oil, and also what is known as the energy return on investment. And this is one of the most important dynamics. And it was keyed by researcher Charles Hall. Now he gets the credit for that. He’s been researching the energy returned on investment (EROI) for decades.

But I picked up on that, followed with that because I believe the energy returned on investment or known as EROI is the underlying calculation of everything. If we don’t get enough energy, we starve to death. So the EROI is for small organisms, for animals, for humans, for companies, companies as well or corporations, as well as empires. They all are based upon the energy return on investment. So that is the key area to focus on to understand how things are going to change in the future.

Bill: So when you analyze where the price of gold is headed, you’re looking at the price of oil, the energy return on investments that the major miners are spending to pull and process it, to bring it to market. You’re also looking at macroeconomic factors as well. Is that right?

Steve: Well that’s true. And a lot of people say, “Well it’s supply and demand.” Well that’s true. Supply and demand, they impact the price of things. But I do believe they only impact the price of good, commodities, stocks above or below their cost of production trend line.

And if you were to remove all the supply and demand fundamentals for gold and look at the oil price since the 1940s until 2018 and you take the gold price, well by gosh, the trends look very similar. And when oil went from $1.80 a barrel in 1970 to 36 in 1980, the gold price went from $40 to $612. These are average prices now in 1980. So gold wasn’t in a bubble. It was doing exactly what it was supposed to do. And that was protect people from inflation in gold as money.

And we saw the same thing recently when oil went from 20 in 1999 up to 100 plus in 2011, it brought the gold price up. But now same with silver, the thing is different. It’s not just the oil price. And I see going forward in conclusion here that while the oil price has been one of the leading drivers in the gold and silver price, we’re going to see a disconnect moving forward. And that’s due to the peaking of unconventional and conventional oil production. That will then change the dynamics. Oil would probably… The oil price will fall. But the gold and silver prices or values will increase at that time. So that’s how I see it playing out in the future.

Bill: So the EROI with oil is bullish in your analysis for gold. But what will be the impact on society in general if this thesis plays out?

Steve: Well according to Charles Hall, the energy return on investment that we need from oil to sustain a modern high tech society such as ours is 12:1 energy return on investment. Now in the 1930s, we were producing oil at about 100:1. That means the U.S. oil industry was producing 100 barrels of oil for the energy cost of 1 by 1970. It fell to 30:1. And the estimates I’ve seen Shell is about 5:1 or less. And then if you get to corn ethanol which the U.S. produces over a million barrels a day, that comes in at a lousy 1.2 energy return on investment.

So you see Shell isn’t paying that minimum requirement bill of 12:1 energy return on investment. So that’s why there’s over 300 billion according some analyst of debt now that has been put on these Shell companies balance sheets. Shell is just not profitable. And so I do think going forward, we’re going to start seeing a… Once Shell peaks, I believe we’re going to see a peak in global oil production because the last thing in the last 10 years since the financial crisis, 75% of total global oil production growth came from Shell. And that hasn’t been profitable. So I do believe we’re going to see a collapse in the future in U.S. Shell oil production. And that’s going to impact the overall economy, U.S. and global economies.

Bill: How do you see nuclear power fitting into this thesis because as I’m listening to you speak, I can just hear some people arguing, “Well you’re not acknowledging the dense power supply that is nuclear and possibly vanadium redox batteries that have a large capacity to house a lot of electricity and maybe even the mining industry would adapt and have electric vehicles as part of what they would use if oil is no longer affordable.” What would your response be to a person with these thoughts?

Steve: Well, that’s a subject for a whole article or a whole interview. The thing is… Here’s the issue. These nuclear has too low of an energy return on investment. When you consider the full production, or let’s say, construction of a nuclear power plant, then the ongoing maintenance, and then when you have to decommission and then what do you do with all the nuclear spent fuel? And we still don’t know what to do with all of this very damaging spent fuel. And most of it is still sitting at these nuclear power plants. So the full cycle energy return on investment of a nuclear power plant…

And we have to remember you need oil, natural, yes, and coal to have as the power source to actually build a nuclear power plant and to mine the Uranium or Thorium if people think Thorium is going to be a new energy source. And this also moves into electric vehicles and solar and wind. And unfortunately, when you look at these alternatives or renewables, really they’re only fossil fuel derivatives. And if we add more solar to the grid and we add more wind to the grid, this is very damaging because the winds stop forming or the wind energy stops generating electricity, when the wind dies and then when the sun goes down, solar stops generating. And then you’ve got to bring on this natural gas generating supplemental energy to balance it all. And so the more solar and wind you add to the grid, the more destructive and volatile the grid becomes.

So I do believe technology is not the answer because technology, believe it or not, Bill, lowers the overall energy return on investment in the system. It doesn’t increase it. And that’s the big problem.

Bill: So with this thesis, are you essentially saying that society will not continue to advance the way it has technologically? Is that the conclusion?

Steve: This idea, and you hear it all the time with family and friends and associates, “Wow. Look at this technology. Can you imagine what we’ve done in the last 100 years? What’s going to happen in the next 10 or 20?” So I hear it all the time. But the problem is no one is looking at the energy. And the energy, it’s a blinking red light. And so there’s this assumption in the world that’s taken for granted, that we’re going to head towards the Jetson’s lifestyle, flying cars, and replicators that make food, and so no one works really anymore.

And then the underlying impact is with the energy. And it’s not only the falling energy return on investment that’s impacting the entire global oil industry. There’s also the thermodynamics which means each year, the net energy in a barrel of oil continues to decline which is why we’re seeing interest rates fall and we’re seeing rising debt. All of that is a symptom of a falling energy return on investment and the thermodynamics of oil depletion. And so unfortunately, yes, I do believe that notion of heading to a Jetson’s world will popped sooner than later.

Bill: Let’s talk specifically about the mining industry now. You cover in a lot of your article the major miners. What are the key trends that you look for? And why do you focus on these trends within major miners?

Steve: Well, I look at the oil production and cost. We’ve been able to have rising gold production because we’ve had rising oil production. So if you take a chart of oil supply. And then you can just superimpose gold production, silver production, copper, lead. They all go up exponential. And then the other thing I look at is ore grades. And ore grades in the gold mining industry, top gold mining industry, have fallen 20% in the last 15 years. So what does that mean? That means the gold mining industry now has to mine and process 20% more ore to produce the same amount of gold.

So if oil prices remain the same which maybe they have in the last 15 years, 10 or 15 years, then the problem is the ore grades continue to fall and will continue to fall even though there are some anomalies like Kirkland Gold which is a high-grade excellent gold company. But that’s not the norm. And so I look at the ore grades. I look at the oil production.

And even though we may see… Once we see a peak in decline of oil production… I do believe the gold mining industry will continue to produce a lot of gold other than the base metal mining industry will be hurt more because the gold mining industry is actually producing a metal that is a store of value where the other base metals are more for the economy. And if you have a fall in your economy, fall in global GDP, then you don’t need the base metals as much as you need the monetary metals.

Bill: Rick Rule says, “The cure for low prices is low prices.” And what you’ve articulated here in the gold mining industry is that the price of gold will have to go up to compensate for these trends you’re seeing. Relating this back to your EROI discussion, is a rising price of cost of living, commodities, can any of that be the fix so to speak to this lower return on EROI that we’re talking about?

Steve: No, because the issue is in the thermodynamics of oil depletion, if you look at a chart, when they started producing oil in the 1860s, 1870s, and they ramped it up considerably in the 1900s; every year on average, it takes more energy to produce the oil. And then there’s less energy in each barrel that makes it to the market. And so global GDP cannot continue to increase. And so you say, “Well if the oil production falls, there’s less oil supply. That means the demand would be there. And then according to typical economic analysis, well, the price should go up.”

But people don’t realize that money comes from the oil… that’s where it… from the energy. And if the energy value is continuing to fall, the net energy in that barrel falls, it’s not worth it. We have to think of oil today like a 10, 15-year-old car. The value of that car, all the embedded energy and all the parts, are wearing down. So it’s not worth a brand new car. It’s worth $8,000 or $5,000. Why would you pay a brand new price for an old car?

This is the same thing we have to think about oil. The price is not going to go up because there’s less of it. Actually, the price is going to fall. And this is one of the things you have to wrap your mind around. But again, the dynamic, we can talk about this. When oil production falls, 99% of the assets which are real estate, stocks, and bonds; they’re in trouble because they’re based upon net present value as well as most ops. And that’s earnings in the future. Well, if earnings in the future are going to fall because oil production is falling, GDP is falling, then what’s going to happen to the value of those three assets? Hence, why gold and silver are the higher quality assets to own in this transitionary time that we’re heading into.

Bill: One thing we can’t predict is a new source of energy. With this thesis, could you potentially see a new source of energy being the solution to what we’re talking about?

Steve: There’s always a chance, right? If I’m open-minded, and I try to be open-minded in my analysis, there’s always a new energy source. It’s not technology now. This idea that technology will solve our problems, let me just tell you, a hunter-gatherer, when they hunt and gathered food, they did it at a 10:1 energy return on investment. For every calorie of energy that hunter-gatherer expanded, they gathered and hunted 10 calories of food. Now a simple farmer using his hand tools, simple agricultural, it’s 5:1 energy return on investment. Then if you throw a horse or an oxen, it lowers it to 1-1.5:1 energy return on investment.

And now let’s fast-forward to today. We’ve got these huge tractors combines. They’re using satellite so they could go up and down these roads in perfectly straight lines. They look so efficient. Well, if these farmers… to get one calorie of corn on your dinner plate, 10 calories of energy are expended. So it’s a huge net energy loser of 1:10. So technology hasn’t fixed it. It’s made it worse. And the only reason why that has worked our food supply system is because of the high energy return on investment of oil that we’ve had over the past 100 years. But that’s changing.

So if we did get a new energy source, I’m very happy for that. But we have to remember a whole system is based on oil.

Bill: Steve, I was taught that one gallon of diesel does the equivalent of 12 hours of work of 12 men. Is that statement not true because I had that in my head for years?

Steve: Yes. And I think people don’t understand… You see we take it for granted. There is thousands of energy, I call them energy slaves, in a barrel of oil. And so when you’ve got this huge Caterpillar 797F haul truck going down and picking up 400 tons of ore, and then moving it back up to the ore area, and dumping it off; the amount, it gets I think .3 miles per gallon, .3 miles per gallon. And so the amount of energy that these trucks move now, that they have to consume; if humans had to do that, you need tens of thousands of them.

And so you see this is the issue. For a millennium especially over the last 100 years ago, mankind and as well as human energy using horses, we were extracting gold with high veins. And so it was easy to extract that gold with not that much energy. Now that’s mostly gone. So we have to move to these very low-grade mines. You could only do that with very high energy sources like oil. And so I think this is the pickle we’re in. And we don’t have a plan B.

And I’ve seen a lot of these energy silver bullets, but it’s also technology. It’s not really an energy source. And so when you get down to the basics, they don’t really solve the problem.

Bill: Let’s talk about the precious metals price. You recently did a video of your analysis of where silver could be headed. This was more based on technical analysis. But please provide an overview of where you see silver going.

Steve: Well years ago, Bill, I didn’t spend much time on technical analysis. I looked more at the fundamentals. But if I look at a 40-year chart of silver, by gosh, there was $14 resistance level going all the way back to 1983. And silver was below that $14 level for two decades. And once it jumped above that in 2006, 2007, it went to $21 rather quickly.

And so if you look at these levels, the technical levels give us an idea when breakouts are going to occur or when we see the price fall, when it goes below our support level. So there is some method to the madness to the technical analysis. And I do believe silver broke out of its 50-month moving average for the first time in six years. And according to traders and hedge funds and institutions, that’s a big deal.

And so moving forward, I think silver needs to break above this $17.25 level, $17.30 level. And then it’ll move to $18.50 rather quickly which is the next resistance. But for me, for silver to be in a new bull market according to the traders, those who do paper trading, it has to get above $21.50. Once silver is above $21.50, I would say then the price on a typical level is in a new bull market.

Bill: And how does what you analyze fit with oil and EROI? How does that impact what you see as the future price of silver?

Steve: Silver, just like gold, went up in the 1970s because of oil. I mean the silver mining cost increased tremendously. I mean Homestake mining, they were producing gold at $42 an ounce in 1970. They were actually losing money. And Homestake was the largest gold mine in the U.S. at the time. Well by 1979, that’s when they had the data for their annual report, their production cost increased six times. It was $246 an ounce. So it wasn’t a coincidence that the gold price had to go up if the mining cost was going up.

Well this was the same for silver. And right now, silver if we look at its long term chart, there is this lower trendline that continues to go up that it hasn’t breached yet. And it’s at $15. Well, guess what? The cost now to produce silver on average for the mining industry, the primary mining industry is $15. And for gold, it’s about $1150-$1200 an ounce, full costs, not all and sustaining, but full costs.

And so when you look at that, that means silver now is at this minimum area where everything just seems to be inflated. So going forward when we consider that when oil production falls, it’s going to put a lot of pressure on most of the assets that people are invested in stocks, bonds, and real estate. So all we would need to see is a 1% movement of investors realizing there’s a lot of trouble with these assets, so move into the precious metals to see their values move up. And I have to conclude by saying there is about the same amount of silver investment in the world as gold. If you add up all the gold investment held in public government and private hands, it’s about 2.5 billion ounces. It’s about 2.6 billion for silver.

So if investors not only want to get into paper, but they start getting into the physical which I see in the future, there is just not that much silver to go around. So silver is probably going to outperform gold on a percentage basis when we see this transition away from building wealth which you can do as oil production goes up to protecting wealth as oil production peaks and declines.

Bill: Excellent. You’ve been listening to Steve St. Angelo, the proprietor and analyst at You can find more of Steve’s writings here. He is also on YouTube at SRS Rocco Report. You can find his presentations there. Usually it’s about a 15-minute video that he does with charts explaining to you his current thoughts on the markets whether it be oil or the precious metals. If you’re listening on YouTube, engage us in the comments below. What do you think about what Steve shared today and the energy return on investment? Be a lady or a gentleman about it please. But I am interested in your thoughts. What do you think about what Steve shared today? So Steve, I appreciate you as a first-time guest on Mining Stock Education. As I said I’ve followed your work for about a decade. Thanks for joining me today.

Steve: It’s been a pleasure, Bill. Thank you.

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