When the Dow Jones to gold ratio retrace to 1:1, which it has on a number of events 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, based on 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 industry. Due to the expansion of gold prices this season, fused with falling electric power costs, margins in the trade have never been better, he observed.
“As the gold price goes up, that distinction [in gold price as well as energy prices] will go directly into the margins and you’re seeing margin expansion. The gold miners have never had it really beneficial. The margins they’re producing are probably the fattest, the best, the absolute incredible margins they have already had,” Lassonde told Kitco News.
Margin expansions and the stock price rally that the mining industry has seen this season shouldn’t dissuade new investors by keying in the room, Lassonde believed.
“You haven’t missed the boat at all, even though the gold stocks are actually up double from the bottom. At the bottom level, 6 months to a season past, the stocks have been very low-cost that nobody was serious. It is exactly the same old story in our space. At the bottom of the market, there’s not more than enough money, and also at the top, there’s usually way excessively, and we’re barely off of the bottom level at this point on time, and there is a great deal to go before we get to the top,” he stated.
The VanEck Vectors Gold Miners ETF (GDX) forty seven % year to date.
Far more exploration action is actually expected from junior miners, Lassonde claimed.
“I would say that by following summer, I would not be surprised if we were to see exploration budgets up by anywhere from twenty five % to thirty % and also the season after, I think the budgets will be up much more likely by fifty % to seventy five %. I do believe there’s going to be a major increase in exploration budgets with the next two years,” he mentioned.