When the Dow Jones to gold ratio retrace to 1:1, that it has on a few occasions in the past, the gold price might climb 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 season, but is still actively involved in the mining market. Due to the development of gold prices this season, fused with falling electric power prices, margins of the trade have not been better, he noted.
“As the gold price goes up, that distinction [in gold price as well as energy prices] will go right into the margins and you are discovering margin development. The gold miners have never had it so healthy. The margins they are creating are actually the fattest, the very best, the absolute unbelievable margins they have already had,” Lassonde told Kitco News.
Margin expansions and the stock price rally that the mining industry has noticed the season shouldn’t dissuade new investors by entering the room, Lassonde claimed.
“You have not skipped the boat at all, even when the gold stocks are up double from the bottom level. At the bottom part, six months to a year before, the stocks were extremely low-cost that no one person was interested. It is the same old story in our area. At the bottom level of the market, there’s not enough cash, and at the top part, there’s constantly way a lot of, and we are slightly off of the bottom at this point in time, and there’s a lot to go just before we reach the top,” he said.
The VanEck Vectors Gold Miners ETF (GDX) 47 % season to date.
Far more exploration task is expected from junior miners, Lassonde believed.
“I would claim that by next summer time, I wouldn’t be shocked if we had been seeing exploration budgets in place by anywhere from twenty five % to 30 % as well as the year after, In my opinion the budgets will be up more likely by fifty % to 75 %. I do believe there is likely to be a big increase in exploration budgets over the next 2 years,” he said.
