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 could very well go up 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 industry. Because of the expansion of gold prices this season, merged with falling electric power costs, margins of the industry have not been better, he observed.
“As the gold price goes up, that difference [in gold price as well as energy prices] will go directly into the margins and you’re noticing margin development. The gold miners haven’t had it really good. The margins they’re producing are actually probably the fattest, the very best, the absolute unbelievable margins they’ve previously had,” Lassonde told Kitco News.
The stock and margin expansions price rally that the mining industry has observed the season should not dissuade new investors by typing the area, Lassonde claimed.
“You haven’t missed the boat at all, despite the fact that the gold stocks are up double from the bottom level. At the bottom part, 6 months to a season past, the stocks have been very cheap that nobody was curious. It is exactly the same old story in our space. At the bottom of the industry, there is not enough money, and at the top part, there is constantly way excessively, and we are slightly off the bottom at this moment on time, and there’s a lot to go before we reach the top,” he mentioned.
The VanEck Vectors Gold Miners ETF (GDX) forty seven % year to date.
More exploration activity is predicted from junior miners, Lassonde believed.
“I would claim that by following summer, I wouldn’t be shocked if we were seeing exploration budgets set up by about twenty five % to 30 % and also the year after, I think the budgets will be up more likely by fifty % to seventy five %. I do believe there is going to be a big rise in exploration budgets over the next two years,” he said.