Should the Dow Jones to gold ratio retrace to 1:1, that it’s on several occasions of the past, the gold price could very well 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 involved in the mining sector. Due to the development of gold prices this season, fused with falling electric power prices, margins in the trade have never been better, he noted.
“As the gold price goes up, that disparity [in gold price as well as energy prices] will go directly into the margins and you are noticing margin expansion. The gold miners haven’t had it really good. The margins they are creating are probably the fattest, the best, the absolute unbelievable margins they’ve ever had,” Lassonde told Kitco News.
Margin expansions and the stock price rally that the mining sector has observed this year should not dissuade new investors by entering the room, Lassonde said.
“You haven’t skipped the boat at all, even though the gold stocks are actually up double from the bottom. At the bottom, six months to a season past, the stocks have been very cheap that no one was interested. It’s exactly the same old story in our area. At the bottom of the sector, there’s not sufficient cash, and at the top, there is usually way excessively, and we are barely off of the bottom part at this stage in time, and there is a lot to go before we reach the top,” he stated.
The VanEck Vectors Gold Miners ETF (GDX) forty seven % year to date.
More exploration task is actually expected from junior miners, Lassonde believed.
“I would claim that by following summer, I wouldn’t be surprised if we had been seeing exploration budgets set up by anywhere from 25 % to thirty % and also the year after, I believe the budgets will be up much more likely by fifty % to seventy five %. I do believe there’s going to be a major surge in exploration budgets over the next 2 years,” he mentioned.