Should the Dow Jones to gold ratio retrace to 1:1, that it’s on several occasions of the past, the gold price could 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 year, but is still actively active in the mining sector. Because of the development of gold prices this year, merged with falling electric power prices, margins in the industry haven’t been better, he observed.
“As the gold price goes up, that distinction [in gold price as well as energy prices] will go straight into the margins and you’re seeing margin expansion. The gold miners haven’t had it so healthy. The margins they are creating are actually probably the fattest, the best, the absolute incredible margins they have already had,” Lassonde told Kitco News.
The stock and margin expansions price rally that the mining sector has seen the season should not dissuade brand new investors from typing the space, Lassonde claimed.
“You haven’t skipped the boat at all, even when the gold stocks are actually up double from the bottom level. At the bottom part, six months to a season ago, the stocks had been so low-cost that nobody was curious. It’s exactly the same old story in our area. At the bottom of the sector, there is not enough cash, and also at the top, there is often way excessively, and we’re barely off of the bottom at this moment 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.
More exploration action is anticipated from junior miners, Lassonde said.
“I would claim that by following summer, I wouldn’t be surprised if we were seeing exploration budgets in place by between twenty five % to 30 % as well as the season after, I do think the budgets will be up very likely by 50 % to 75 %. I do believe there’s going to be a big surge in exploration budgets with the next two years,” he said.