Fundamental Value of Gold using Embodied Energy. Law of Intricacy, Scarcity & Utility.
by Jon Forrest Little , first to report on gold and embodied energy (Not to be confused with St. Angelo's great research on peak oil which is the EnergyCliff - this is an entirely different topic)
Embodied Energy. The best way to arrive at the Fundamental Value of Gold.
Intricacy + Scarcity + Utility | Embodied Energy
A new theory that escapes the trappings of politics, foreign policy, monetary policy, The Federal Reserve’s interference, inflation, and OTC derivative manipulation.
Spending too much time over recent years chasing headlines, looking at charts, and bouncing back and forth between systemic risk, banking schemes, manipulation schemes, etc. So I decided to focus on what is fundamentally gold instead of:
-What is The Fed going to do?
-What's going on with Comex, LBMA, Shanghai Gold Exchange?
-What about the 200 day moving average?
-What about systemic risk?
-What about geopolitical tensions?
-Is inflation just getting started?
-What about the strength of the DXY?
-What about gold manipulation?
-What about Fibonacci retracement levels, Elliott waves, support, and resistance?
-What about cup and handles?
-What about BRICS?
-Plus, recent banks are underwater.
-Are Sovereign defaults on the horizon too?
Some experts discuss the price action of gold relative to the strength of the US dollar. Even more, experts discuss how gold and silver hedge against inflation. Then there are volumes of content on economic systemic risk and geopolitics. Recently, we've learned that the Silver Institute is calling for a shortage of silver, bringing out another slew of experts to discuss supply and demand.
The purpose of this article is to discuss the concept of embodied energy which is a more straightforward way to appreciate value.
Before we get into embodied energy this is a fact that goes ignored mostly.
The unique role that gold plays in society is to a large extent related to the fact that it is the most noble of all metals: it is the least reactive metal towards atoms or molecules at the interface with a gas or a liquid.
Embodied energy is a material's total energy from the cradle to the grave. Below I will discuss intricacy / embodied energy using 5 products we see daily and then compare them all to gold.
1. Bricks Bricks are made from mining clay found close to the earth's surface. Then this clay is sifted and fed into an extruder that pushes the clay into long wet clay columns. These columns are cut with wires into various sizes (typically 4" x 8")
The clay units spend a few days drying by electrical powered fans. Then the clay units are stacked on rail cars that travel through a tunnel kiln for about three days. The kiln is powered by natural gas at an average temperature of 1,800 degrees.
Next, the clay-fired masonry units are sorted, bundled, and shipped to a job site. This is a complex chain of manufacturing steps. These are building material units stacked on rail cars, and the process involves a fiery 100-foot-long journey. Yet the embodied energy score for clay-fired bricks is less than 10. People understand that bricks have tremendous value. They are high in density and low in absorption. They do well in severe weather and protect structures from moisture intrusion.
2. Chocolate or Spaghetti? A tasty way to think of embodied energy
A typical chocolate bar uses 250 watt hours to produce a chocolate bar.
250 watt-hours is the same energy used to cook 20 large servings of spaghetti.
3. Wine Consider all the intricacy, complexity, steps, time and work it takes for the wine to go from the grapes planted through bottling. The soil is first prepared with proper nutrients, the soil has also been irrigated, the planting and harvesting and all the steps below and some wines get better or gain more value with time
4. Olive Oil Think about olive oil the most common cooking oil from the Mediterranean region.
Overall, this is a step-by-step process that is comprised of seven stages, from the harvesting of the mature fruit from olive trees, to the packaging and sale of the finished product.
Initially, ripe olives are harvested from trees by farmers and then taken to a rinsing machine where they are washed in cold water. After being rinsed, the olives are transferred via conveyor belt to another machine which grinds the olives to separate the fruit from the seeds. During this stage, the olives are ground into a paste, and the olive stones are removed.
The olive paste is then placed in a type of perforated bag before being put through a pressing machine, followed by another process where any excess water is separated from the oil. And finally, the olive oil is packaged and delivered to shops where it can be sold.
source - https://ieltspracticeonline.com/band-8-5-ielts-writing-task-1-recent-test/
5. Navajo Rug
photo shows all the native plants required to make the rug's various wool / yarn dye colors.
Arriving at value - Complexity of Navajo Rug.
The sheep are fed, cared for and their wool is sheared.
They spin yarn from the wool.
Each color in the rug requires another step where the wool yarn is colored creating a dye from native plants (cooked in metal kettle stirred with wooden tool)
A loom is built and note the complexity on how the loom is engineered.
The weaver spends months on the project
This entire process from raising & feeding sheep to creating colorful yarns, building loom represents considerable time and energy.
Weaving the rug (the total process) equals the Navajo rug’s embodied energy.
Yet after all this work they are still available for $4,800 average. ( if you get the real deal like woven on the reservation in the 4 corners area.)
Try to buy from the Navajo weaver instead of the Anglo broker.
The Farmer, The Rancher, The Miner and how they respect, trust and need each other
In its ideal form, the marketplace consists of various contributors performing work and bringing their contributions to market. For example, a farmer can spend a season preparing soil, planting, harvesting then shipping their crops to stores.
Similarly, a rancher can raise cows and goats by giving them adequate feed and care. Meanwhile, I could spend the same time panning for gold during these farmer and rancher seasons. The farmer, the rancher, and the gold miner all respect each other's work, and the market ideally sets a fair exchange.
We should think of gold and silver the same way by considering all this complexity, utility, and scarcity.
We should stop overthinking precious metals. For example, how long would it take to explain Fibonacci Correlations compared to the story about the farmer, the rancher, and the miner?
Previously I wrote that brick has an embodied energy score under 10.
Guess what the score is for gold? 310,000 MJ/kg (megajoules per kilogram) This means it is extremely difficult to manufacture under current conditions (economic, energy, jurisdictional, environmental or political)
End of section - Law of I + S + U (EE) ©2023 Copyright ALL RIGHTS RESERVED
The amount of gold above ground stays fairly constant. Since the beginning of time, very little gold has been lost or destroyed.
It's almost all accounted for and held in vaults, people's homes, or jewelry. This is important because very little is mined each year, only one-half of one percent or less relative to existing stockpiles above ground.
Concept of hardness explained. Not hard in terms of compressive strength. Hard as in very difficult or hard to produce
No substance on planet earth has this kind of store of energy value.
Embodied Energy Gold and other minerals Source - https://royalsocietypublishing.org/doi/pdf/10.1098/rsta.2012.0003
Figure 1. It takes about 1 gigajoule of energy (1 billion joules) to build a typical smartphone - known as the phone's embodied energy.[1] Embodied energy is the energy that is consumed in order to build a given usable object. This includes the energy from material extraction, refining, processing, transporting, and fabricating.[2]
It is named as such because it is as if this energy is "embodied" within the item itself. Embodied energy also comes along with idea of embodied carbon, which is the associated CO2 footprint that is emitted during the object's creation.
Embodied energy is found within all types of objects, including things like cell phones, appliances, homes, buildings, and furniture. The embodied energy of a given object can be analyzed by knowing what materials are contained within an object, and how much of that given material there is. The amount of energy needed to produce a certain material such as aluminum, steel, or concrete is known and can be used to calculate the embodied energy within an item.[3]
Embodied Energy of Objects
The idea of embodied energy is important to help analyze the energy savings of a particular object. For example, if a proposed wind turbine is promised to be more energy efficient in its operation but requires tremendous amounts of energy in its materials and assembly, it might not be worth the effort. From this knowledge of an object's embodied energy, the environmental impact associated with it may also be estimated.
The embodied energy within a given raw material is typically measured in an "energy per unit mass" scale, such as megajoules per kilogram. For the table below the values are an aggregate of all of the energy within the objects, so there is no mass unit included, rather it is the amount of energy in the entire object.
NOTE - Silvers embodied energy would be considerably higher if Silver was considered a primary monetary metal like Gold. Silver is secondarily a monetary metal but also an industrial metal used in electronics, solar panels, aerospace, electric cars, jewelry, medicine, and water purification. Silver mining happens in an environment where zinc & lead by-products also occur. If this were just a "hunt for silver," then its embodied energy would be measured independently.
References
https://www.pexels.com/photo/hand-apple-iphone-smartphone-3510/
Circular Ecology. (Accessed September 12, 2015). Embodied energy and carbon [Online], Available: http://www.circularecology.com/embodied-energy-and-carbon-footprint-database.html#.VfSnOPlVikp
UNEP. (August 19, 2015). Environmental Risks and Challenges of Anthropogenic Metals Flows and Cycles [Online]. Available: https://d396qusza40orc.cloudfront.net/metals/3_Environmental_Challenges_Metals-Full%20Report_36dpi_130923.pdf#96
N. Duque Ciceri, T.G. Gutowski, and M. Garetti. (Accessed September 13, 2015). A Tool to Estimate Materials and Manufacturing Energy for a Product [Online], Available: http://web.mit.edu/ebm/www/Publications/9_Paper.pdf
B. Raghavan and J. Ma at UC Berkeley. (Accessed September 13, 2015). The Energy and Emergy of the Internet [Online], Available: http://conferences.sigcomm.org/hotnets/2011/papers/hotnetsX-final56.pdf
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