When the Dow Jones to gold ratio retrace to 1:1, that it has on a few events in 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 expansion of gold prices this year, combined with falling electricity costs, margins in the business have never been better, he observed.
“As the gold price goes up, that disparity [in gold price as well as energy prices] will go right into the margins and you are discovering margin development. The gold miners haven’t ever had it so beneficial. The margins they’re producing are the fattest, the best, the absolute incredible margins they’ve already had,” Lassonde told Kitco News.
Margin expansions and the stock price rally that the mining sector has observed this season should not dissuade new investors from keying in the space, Lassonde said.
“You haven’t skipped the boat at all, even when the gold stocks are actually up double from the bottom part. At the bottom level, 6 months to a season before, the stocks have been extremely cheap that nobody was curious. It’s exactly the same old story in the room of ours. At the bottom level of the industry, there’s not more than enough money, and at the top, there’s always way excessively, and we are slightly off the bottom level at this point on time, and there is a great deal to go before we get to the top,” he mentioned.
The VanEck Vectors Gold Miners ETF (GDX) 47 % season to date.
More exploration activity is actually predicted from junior miners, Lassonde believed.
“I would claim that by next summer time, I wouldn’t be shocked if we were seeing exploration budgets up by between twenty five % to 30 % as well as the season after, I think the budgets will be up much more likely by fifty % to 75 %. I do believe there’s going to be a big surge in exploration budgets with the following two years,” he mentioned.