When the Dow Jones to gold ratio retrace to 1:1, that it’s on a number of occasions in the past, the gold price could climb to $15,000 to $20,000 an ounce assuming the metal catches up to the Dow, based on Pierre Lassonde, chair emeritus of Franco Nevada.
Lassonde retired from the board of Franco-Nevada this season, but is still actively active in the mining sector. Because of the development of gold prices this season, merged with falling electric power prices, margins in the trade have not been better, he noted.
“As the gold price goes up, that difference [in gold price and energy prices] will go right into the margins and you are seeing margin expansion. The gold miners have never had it very healthy. The margins they’re generating are actually the fattest, the very best, the absolute incredible margins they have ever had,” Lassonde told Kitco News.
Margin expansions and the stock price rally that the mining industry has observed this season should not dissuade brand new investors by entering the room, Lassonde claimed.
“You have not skipped the boat at all, even though the gold stocks are actually up double from the bottom. At the bottom level, six months to a season past, the stocks had been so inexpensive that no one was interested. It is the same old story in the space of ours. At the bottom part of the industry, there is not more than enough money, and at the upper part, there’s constantly way too much, and we are slightly off of the bottom level at this moment in time, and there’s a lot to go just before we achieve the top,” he stated.
The VanEck Vectors Gold Miners ETF (GDX) 47 % season to date.
More exploration activity is predicted from junior miners, Lassonde believed.
“I would say that by following summer, I would not be shocked if we had been seeing exploration budgets in place by about twenty five % to 30 % and also the year after, I think the budgets will be up much more likely by 50 % to 75 %. I do believe there is likely to be a major rise in exploration budgets over the following 2 years,” he said.