Should the Dow Jones to gold ratio retrace to 1:1, which it has on several events of the past, the gold price could ascend 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 season, but is still actively working in the mining industry. Because of the development of gold prices this season, fused with falling electricity costs, margins in the trade have not been better, he noted.
“As the gold price goes up, that disparity [in gold price and energy prices] will go directly into the margins and you’re seeing margin expansion. The gold miners haven’t ever had it so healthy. The margins they are producing are the fattest, the very best, the absolute incredible margins they’ve previously had,” Lassonde told Kitco News.
The stock and margin expansions price rally that the mining sector has seen this year shouldn’t dissuade brand new investors by keying in the area, Lassonde believed.
“You haven’t skipped the boat at all, even when the gold stocks are actually up double from the bottom. At the bottom, six months to a season ago, the stocks had been so cheap that nobody was curious. It’s the same old story in our area. At the bottom level of the industry, there is never more than enough money, and also at the top, there is usually way a lot of, and we are barely off of the bottom at this stage in time, and there is a lot to go just before we get to the top,” he said.
The VanEck Vectors Gold Miners ETF (GDX) 47 % season to day.
Far more exploration activity is expected from junior miners, Lassonde believed.
“I would point out that by next summer time, I wouldn’t be shocked if we were seeing exploration budgets in place by anywhere from 25 % to thirty % and also the season after, I do believe the budgets will be up more likely by 50 % to 75 %. I do believe there is likely to be a major surge in exploration budgets with the next two years,” he stated.