Should the Dow Jones to gold ratio retrace to 1:1, that it’s on a few occasions of the past, the gold price could very well go up 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 sector. Because of the development of gold prices this year, coupled with falling electricity costs, margins in the trade have not been better, he seen.
“As the gold price goes up, that difference [in gold price and energy prices] will go straight into the margins and you are noticing margin expansion. The gold miners haven’t had it very good. The margins they are producing are actually probably the fattest, the very best, the absolute incredible margins they have previously had,” Lassonde told Kitco News.
The stock and margin expansions price rally that the mining market has observed this season shouldn’t dissuade new investors from entering the room, Lassonde believed.
“You haven’t skipped the boat at all, even though the gold stocks are actually up double from the bottom level. At the bottom part, 6 months to a season before, the stocks were very cheap that no one person was serious. It’s exactly the same old story in our room. At the bottom part of the sector, there is not more than enough cash, and also at the top, there’s always way too much, and we are barely off of the bottom part at this moment in time, and there is a lot to go before we reach the top,” he mentioned.
The VanEck Vectors Gold Miners ETF (GDX) 47 % year to day.
Far more exploration task is actually anticipated from junior miners, Lassonde believed.
“I would say that by next summer, I wouldn’t be shocked if we were to see exploration budgets in place by about 25 % to thirty % as well as the season after, I do believe the budgets will be up much more likely by 50 % to seventy five %. I do believe there’s going to be a huge surge in exploration budgets over the following 2 years,” he stated.