When the Dow Jones to gold ratio retrace to 1:1, that it has on a few occasions of the past, the gold price might climb 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 working in the mining industry. Due to the expansion of gold prices this season, fused with falling electric power costs, margins in the industry have never been better, he noted.
“As the gold price goes up, that difference [in gold price and energy prices] will go directly into the margins and you’re discovering margin development. The gold miners haven’t ever had it very healthy. The margins they’re producing are actually the fattest, the best, the complete unbelievable margins they have already had,” Lassonde told Kitco News.
Margin expansions and the stock price rally that the mining market has noticed this year shouldn’t dissuade brand new investors by entering the space, Lassonde believed.
“You have not missed the boat at all, even when the gold stocks are up double from the bottom. At the bottom part, 6 months to a year ago, the stocks were so low-cost that no one was serious. It’s the same old story in our area. At the bottom of the market, there’s not more than enough money, and at the upper part, there is constantly way excessively, and we’re barely off the bottom level at this point on time, and there’s a great deal to go before we get to the top,” he stated.
The VanEck Vectors Gold Miners ETF (GDX) 47 % season to day.
Far more exploration action is predicted from junior miners, Lassonde believed.
“I would claim that by following summer time, I would not be shocked if we were seeing exploration budgets set up by about twenty five % to thirty % and the season after, In my opinion the budgets will be up more likely by fifty % to 75 %. I do believe there’s going to be a big rise in exploration budgets with the following 2 years,” he stated.