When the Dow Jones to gold ratio retrace to 1:1, which it has on a number of activities of the past, the gold price could rise 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 active in the mining market. Due to the development of gold prices this year, coupled with falling electricity prices, margins of the business haven’t been better, he seen.
“As the gold price goes up, that difference [in gold price and energy prices] will go directly into the margins and you’re seeing margin expansion. The gold miners haven’t ever had it really good. The margins they are creating are the fattest, the very 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 noticed this season should not dissuade new investors from entering 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 part, six months to a year past, the stocks were so affordable that no one person was serious. It is exactly the same old story in the area of ours. At the bottom part of the industry, there’s never sufficient cash, and at the top, there’s usually way too much, and we are barely off the bottom at this moment in time, and there is a lot to go just before we get to the top,” he mentioned.
The VanEck Vectors Gold Miners ETF (GDX) 47 % year to date.
More exploration activity is expected from junior miners, Lassonde believed.
“I would claim that by following summer, I would not be shocked if we had been seeing exploration budgets up by between twenty five % to thirty % and also the season after, I do think the budgets will be up very likely by 50 % to 75 %. I do believe there’s going to be a big increase in exploration budgets over the next 2 years,” he said.