If the Dow Jones to gold ratio retrace to 1:1, that it has on a few occasions of the past, the gold price could very well rise 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. Because of the expansion of gold prices this season, combined with falling electricity prices, margins of the business haven’t been better, he seen.
“As the gold price goes up, that disparity [in gold price as well as energy prices] will go right into the margins and you’re seeing margin development. The gold miners haven’t ever had it very healthy. The margins they are generating are probably the fattest, the best, the complete incredible margins they’ve previously had,” Lassonde told Kitco News.
The stock and margin expansions price rally that the mining sector has observed the season shouldn’t dissuade brand new investors from entering the space, Lassonde said.
“You have not missed the boat at all, even when the gold stocks are up double from the bottom part. At the bottom level, six months to a season past, the stocks had been so low-cost that nobody was serious. It’s the same old story in our room. At the bottom of the sector, there’s never more than enough cash, and at the upper part, there’s often way too much, and we’re slightly off of the bottom at this point in time, and there’s a great deal to go just before we get to the top,” he mentioned.
The VanEck Vectors Gold Miners ETF (GDX) 47 % year to date.
Far more exploration activity is actually expected from junior miners, Lassonde believed.
“I would point out that by following summer, I wouldn’t be surprised if we had been to see exploration budgets up by anywhere from twenty five % to 30 % and also the season after, I do believe the budgets will be up much more 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 stated.
