If the Dow Jones to gold ratio retrace to 1:1, which it’s on a number of events in the past, the gold price could go up 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 active in the mining market. Because of the expansion of gold prices this season, combined with falling electricity costs, margins of the trade have not been better, he observed.
“As the gold price goes up, that disparity [in gold price as well as energy prices] will go directly into the margins and you are noticing margin expansion. The gold miners haven’t ever had it so beneficial. The margins they are generating are actually probably the fattest, the best, the complete unbelievable margins they have already had,” Lassonde told Kitco News.
The stock and margin expansions price rally that the mining market has observed this year should not dissuade new investors from typing the space, Lassonde believed.
“You have not skipped the boat at all, even when the gold stocks are up double from the bottom level. At the bottom, six months to a season ago, the stocks were very cheap that nobody was serious. It’s the same old story in our room. At the bottom of the industry, there’s not sufficient money, and also at the upper part, there is always way a lot of, and we’re slightly off of the bottom at this point 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) forty seven % season to day.
More exploration activity is actually predicted from junior miners, Lassonde believed.
“I would claim that by following summer, I wouldn’t be surprised if we were to see exploration budgets set up by about twenty five % to thirty % and also the year after, I think the budgets will be up more likely by 50 % to seventy five %. I do believe there is going to be a major increase in exploration budgets over the next 2 years,” he mentioned.