Should the Dow Jones to gold ratio retrace to 1:1, that it has on a number of activities of the past, the gold price might climb 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 working in the mining sector. Due to the development of gold prices this season, coupled with falling electricity prices, margins in the industry have not been better, he observed.
“As the gold price goes up, that disparity [in gold price and energy prices] will go straight into the margins and you’re seeing margin expansion. The gold miners haven’t ever had it so good. The margins they are producing are probably the fattest, the best, the absolute incredible margins they’ve previously had,” Lassonde told Kitco News.
The stock and margin expansions price rally that the mining industry has observed this season should not dissuade brand new investors from typing the area, Lassonde said.
“You haven’t missed the boat at all, even when the gold stocks are up double from the bottom. At the bottom level, six months to a year ago, the stocks have been extremely cheap that nobody was serious. It’s exactly the same old story in the area of ours. At the bottom part of the sector, there is not sufficient money, and at the top part, there is often way excessively, and we’re slightly off of the bottom part at this moment on time, and there’s a lot to go just before we reach the top,” he mentioned.
The VanEck Vectors Gold Miners ETF (GDX) 47 % year to particular date.
Far more exploration action is actually predicted from junior miners, Lassonde said.
“I would say that by next summer time, I wouldn’t be shocked if we had been to see exploration budgets in place by anywhere from 25 % to thirty % and the year after, I believe the budgets will be up very likely by 50 % to 75 %. I do believe there’s likely to be a big increase in exploration budgets over the next 2 years,” he said.