If the Dow Jones to gold ratio retrace to 1:1, which it has on a few occasions in the past, the gold price could ascend 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 involved in the mining sector. Due to the development of gold prices this year, coupled with falling electricity prices, margins in the trade haven’t been better, he noted.
“As the gold price goes up, that distinction [in gold price and energy prices] will go straight into the margins and you are noticing margin expansion. The gold miners haven’t ever had it really healthy. The margins they’re creating are the fattest, the very best, the absolute unbelievable margins they’ve previously had,” Lassonde told Kitco News.
Margin expansions and the stock price rally that the mining market has noticed this season should not dissuade new investors by typing the room, Lassonde believed.
“You have not missed the boat at all, even though the gold stocks are actually up double from the bottom level. At the bottom part, six months to a year before, the stocks were so low-cost that no one person was interested. It’s exactly the same old story in the space of ours. At the bottom part of the sector, there is not sufficient cash, and at the upper part, there’s often way too much, and we’re slightly off the bottom level at this moment in time, and there is a lot to go before we achieve the top,” he said.
The VanEck Vectors Gold Miners ETF (GDX) forty seven % season to day.
More exploration action is expected from junior miners, Lassonde said.
“I would point out that by following summer time, I wouldn’t be surprised if we were seeing exploration budgets up by between twenty five % to thirty % and also the season after, I believe the budgets will be up much more likely by 50 % to seventy five %. I do believe there is likely to be a big increase in exploration budgets with the next two years,” he said.