Should the Dow Jones to gold ratio retrace to 1:1, which it has on a number of events of the past, the gold price could ascend 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. Due to the development of gold prices this year, combined with falling electric power costs, margins in the trade have not been better, he noted.
“As the gold price goes up, that disparity [in gold price and energy prices] will go straight into the margins and you are discovering margin expansion. The gold miners haven’t ever had it very good. The margins they are generating are probably the fattest, the very best, the complete unbelievable margins they’ve already had,” Lassonde told Kitco News.
Margin expansions and the stock price rally that the mining industry has seen this season shouldn’t dissuade brand new investors by typing the area, Lassonde claimed.
“You have not missed 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 past, the stocks have been extremely low-cost that no one person was serious. It’s the same old story in our area. At the bottom level of the sector, there’s not sufficient cash, and also at the top part, there’s usually way too much, and we’re slightly off the bottom at this point in time, and there is a great deal to go just before we achieve the top,” he mentioned.
The VanEck Vectors Gold Miners ETF (GDX) 47 % year to date.
Far more exploration task is actually anticipated from junior miners, Lassonde claimed.
“I would point out that by following summer, I would not be shocked if we were seeing exploration budgets set up by between 25 % to 30 % and also the season after, I think the budgets will be up more likely by 50 % to 75 %. I do believe there is likely to be a big surge in exploration budgets with the following two years,” he mentioned.