Should the Dow Jones to gold ratio retrace to 1:1, that it has on a few activities in the past, the gold price might 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 season, but is still actively active in the mining market. Because of the expansion of gold prices this year, merged with falling electricity costs, margins in the industry have not been better, he noted.
“As the gold price goes up, that difference [in gold price as well as energy prices] will go directly into the margins and you are discovering margin expansion. The gold miners have never had it extremely healthy. The margins they’re producing are the fattest, the best, the absolute incredible margins they have already had,” Lassonde told Kitco News.
Margin expansions and the stock price rally that the mining market has seen the year shouldn’t dissuade new investors by typing the area, Lassonde believed.
“You haven’t missed the boat at all, even though the gold stocks are actually up double from the bottom part. At the bottom level, 6 months to a year ago, the stocks had been very cheap that no one person was serious. It’s the same old story in the area of ours. At the bottom part of the sector, there’s not more than enough cash, and at the upper part, there is usually way excessively, and we are barely off the bottom at this moment on time, and there is a lot to go just before we achieve the top,” he said.
The VanEck Vectors Gold Miners ETF (GDX) forty seven % year to date.
More exploration activity is actually predicted from junior miners, Lassonde believed.
“I would say that by next summer time, I would not be shocked if we were to see exploration budgets in place by anywhere from twenty five % to thirty % and the season after, In my opinion the budgets will be up more likely by 50 % to 75 %. I do believe there’s likely to be a major increase in exploration budgets with the following two years,” he mentioned.