If the Dow Jones to gold ratio retrace to 1:1, which it’s on a number of activities 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, as reported by Pierre Lassonde, chair emeritus of Franco-Nevada.
Lassonde retired from the board of Franco Nevada this year, but is still actively involved in the mining market. Because of the development of gold prices this season, combined with falling energy costs, margins in the industry have not been better, he observed.
“As the gold price goes up, that difference [in gold price and energy prices] will go directly into the margins and you are noticing margin expansion. The gold miners haven’t had it extremely beneficial. The margins they’re creating are the fattest, the best, the absolute incredible margins they’ve ever had,” Lassonde told Kitco News.
The stock and margin expansions price rally that the mining industry has observed the season shouldn’t dissuade brand new investors from typing the room, Lassonde said.
“You have not skipped the boat at all, despite the fact that the gold stocks are up double from the bottom level. At the bottom, 6 months to a season ago, the stocks were very inexpensive that no one person was interested. It is exactly the same old story in the room of ours. At the bottom of the market, there’s not enough money, and also at the top part, there is constantly way a lot of, and we are barely off of the bottom at this moment on time, and there is a lot to go just before we reach the top,” he mentioned.
The VanEck Vectors Gold Miners ETF (GDX) 47 % season to date.
Far more exploration activity is expected from junior miners, Lassonde claimed.
“I would claim that by following summer, I wouldn’t be surprised if we had been seeing exploration budgets up by anywhere from 25 % to thirty % as well as the year after, I think the budgets will be up more likely by 50 % to 75 %. I do believe there is likely to be a major increase in exploration budgets over the next two years,” he said.