Should the Dow Jones to gold ratio retrace to 1:1, which it has on a few activities of the past, the gold price could very well rise 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 involved in the mining industry. Because of the development of gold prices this season, merged with falling energy costs, margins of the industry have not been better, he noted.
“As the gold price goes up, that difference [in gold price and energy prices] will go right into the margins and you are seeing margin development. The gold miners haven’t had it very good. The margins they are producing are the fattest, the very best, the complete unbelievable margins they’ve ever had,” Lassonde told Kitco News.
The stock and margin expansions price rally that the mining sector has noticed the year shouldn’t dissuade new investors from keying in the room, Lassonde believed.
“You have not skipped the boat at all, despite the fact that the gold stocks are actually up double from the bottom. At the bottom, 6 months to a year past, the stocks have been so inexpensive that no one person was interested. It is exactly the same old story in our room. At the bottom part of the sector, there is not more than enough cash, and at the top, there is usually way excessively, and we’re slightly off the bottom part at this point on time, and there is a lot to go just before we get to the top,” he said.
The VanEck Vectors Gold Miners ETF (GDX) 47 % season to day.
More exploration activity is anticipated from junior miners, Lassonde believed.
“I would claim that by following summer time, I would not be shocked if we had been to see exploration budgets up by about 25 % to thirty % and the season after, I believe the budgets will be up very likely by fifty % to 75 %. I do believe there is going to be a major surge in exploration budgets over the following two years,” he stated.