When the Dow Jones to gold ratio retrace to 1:1, which it’s on a number of events in the past, the gold price might climb 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 year, but is still actively working in the mining industry. Because of the expansion of gold prices this year, combined with falling energy prices, margins in the business have not been better, he noted.
“As the gold price goes up, that disparity [in gold price and energy prices] will go directly into the margins and you’re discovering margin development. The gold miners have never had it so healthy. The margins they’re generating are the fattest, the very best, the absolute unbelievable margins they have previously had,” Lassonde told Kitco News.
Margin expansions and the stock price rally that the mining market has noticed this year shouldn’t dissuade new investors from keying in the room, Lassonde claimed.
“You have not missed the boat at all, even though the gold stocks are up double from the bottom. At the bottom level, six months to a year past, the stocks have been so cheap that no one was interested. It is the same old story in our room. At the bottom part of the industry, there is never enough money, and at the top, there’s constantly way a lot of, and we’re barely off the bottom part at this moment in time, and there’s a lot to go just before we achieve the top,” he stated.
The VanEck Vectors Gold Miners ETF (GDX) forty seven % year to date.
More exploration action is anticipated from junior miners, Lassonde said.
“I would claim that by following summer, I wouldn’t be shocked if we had been to see exploration budgets in place by between 25 % to 30 % as well as the year after, In my opinion the budgets will be up much more likely by fifty % to seventy five %. I do believe there is likely to be a huge rise in exploration budgets over the following 2 years,” he stated.