Should the Dow Jones to gold ratio retrace to 1:1, which it’s on a few occasions of the past, the gold price might go up 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 year, but is still actively active in the mining market. Due to the development of gold prices this year, combined with falling energy costs, margins in the industry have not been better, he seen.
“As the gold price goes up, that disparity [in gold price and energy prices] will go right into the margins and you are discovering margin expansion. The gold miners have never had it extremely good. The margins they’re creating are probably the fattest, the very best, the complete incredible margins they have ever had,” Lassonde told Kitco News.
The stock and margin expansions price rally that the mining sector has noticed the season shouldn’t dissuade brand new investors from entering the room, Lassonde claimed.
“You have not missed the boat at all, even when the gold stocks are actually up double from the bottom part. At the bottom, six months to a year past, the stocks were so inexpensive that no one person was serious. It is exactly the same old story in our room. At the bottom of the sector, there is never sufficient cash, and at the top, there’s usually way a lot of, and we’re slightly off the bottom part at this stage on time, and there is a lot to go just before we get to the top,” he stated.
The VanEck Vectors Gold Miners ETF (GDX) 47 % year to date.
More exploration task is expected from junior miners, Lassonde said.
“I would say that by next summer, I would not be surprised if we were seeing exploration budgets up by between 25 % to thirty % and also the year after, I do think the budgets will be up much more likely by fifty % to 75 %. I do believe there is going to be a big rise in exploration budgets over the following two years,” he said.