When the Dow Jones to gold ratio retrace to 1:1, which it has on a number of occasions in the past, the gold price could very well 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 working in the mining sector. Due to the development of gold prices this season, merged with falling energy costs, margins in the industry have not been better, he observed.
“As the gold price goes up, that disparity [in gold price and energy prices] will go straight into the margins and you are seeing margin expansion. The gold miners haven’t had it very good. The margins they’re producing are actually probably the fattest, the best, the complete unbelievable margins they’ve already had,” Lassonde told Kitco News.
The stock and margin expansions price rally that the mining market has seen the year shouldn’t dissuade new investors from entering the room, Lassonde believed.
“You haven’t missed the boat at all, despite the fact that the gold stocks are up double from the bottom level. At the bottom, six months to a year past, the stocks were extremely low-cost that no one was curious. It’s exactly the same old story in the room of ours. At the bottom level of the industry, there is not sufficient cash, and at the top, there is always way a lot of, and we’re barely off the bottom part at this stage in time, and there’s a lot to go before we reach the top,” he stated.
The VanEck Vectors Gold Miners ETF (GDX) forty seven % season to date.
More exploration activity is anticipated from junior miners, Lassonde believed.
“I would point out that by next summer time, I would not be shocked if we had been seeing exploration budgets up by anywhere from 25 % to 30 % and the year after, I believe the budgets will be up much more likely by fifty % to seventy five %. I do believe there is likely to be a major increase in exploration budgets over the next two years,” he stated.