When the Dow Jones to gold ratio retrace to 1:1, that it’s on a few events of 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 active in the mining industry. Because of the development of gold prices this season, coupled with falling electric power prices, margins of the industry have never been better, he observed.
“As the gold price goes up, that difference [in gold price and energy prices] will go straight into the margins and you are seeing margin expansion. The gold miners haven’t ever had it really healthy. The margins they’re producing are probably the fattest, the best, the complete unbelievable margins they have previously had,” Lassonde told Kitco News.
Margin expansions and the stock price rally that the mining sector has noticed the year shouldn’t dissuade brand new investors from entering the space, Lassonde believed.
“You haven’t skipped the boat at all, despite the fact that the gold stocks are up double from the bottom. At the bottom, six months to a season ago, the stocks were extremely affordable that no one person was curious. It’s the same old story in our room. At the bottom of the sector, there is not more than enough cash, and also at the top, there’s often way a lot of, and we’re slightly off of the bottom at this moment on time, and there is a lot to go just before we get to the top,” he mentioned.
The VanEck Vectors Gold Miners ETF (GDX) 47 % season to particular date.
Far more exploration activity is actually predicted from junior miners, Lassonde believed.
“I would point out that by next summer time, I would not be surprised if we had been seeing exploration budgets up by about twenty five % to thirty % and the season after, I do think the budgets will be up very likely by 50 % to seventy five %. I do believe there is likely to be a huge rise in exploration budgets with the next two years,” he stated.