If the Dow Jones to gold ratio retrace to 1:1, that it’s on a number of activities in the past, the gold price could climb to $15,000 to $20,000 an ounce assuming the metal catches up to the Dow, according to Pierre Lassonde, chair emeritus of Franco Nevada.
Lassonde retired from the board of Franco-Nevada this year, but is still actively involved in the mining industry. Because of the development of gold prices this season, coupled with falling electricity prices, margins in the business have never been better, he observed.
“As the gold price goes up, that difference [in gold price as well as energy prices] will go straight into the margins and you are seeing margin development. The gold miners have never had it so beneficial. The margins they are producing are actually the fattest, the very best, the absolute incredible margins they’ve ever had,” Lassonde told Kitco News.
The stock and margin expansions price rally that the mining sector has seen the season shouldn’t dissuade new investors from typing the space, Lassonde said.
“You have not missed the boat at all, despite the fact that the gold stocks are up double from the bottom. At the bottom level, six months to a year before, the stocks were so inexpensive that no one person was interested. It is the same old story in the area of ours. At the bottom level of the market, there is not sufficient cash, and at the upper part, there is always way too much, and we’re barely off of the bottom part at this moment on time, and there’s a lot to go before we achieve the top,” he stated.
The VanEck Vectors Gold Miners ETF (GDX) 47 % year to particular date.
Far more exploration action is expected from junior miners, Lassonde believed.
“I would say that by following summer time, I would not be shocked if we had been seeing exploration budgets in place by anywhere from 25 % to thirty % and the year after, I do believe the budgets will be up more likely by fifty % to 75 %. I do believe there is likely to be a huge rise in exploration budgets over the next 2 years,” he mentioned.