If the Dow Jones to gold ratio retrace to 1:1, that it’s on several events in the past, the gold price could rise 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 working in the mining sector. Because of the expansion of gold prices this year, merged with falling electricity prices, margins of the business have never been better, he noted.
“As the gold price goes up, that distinction [in gold price and energy prices] will go right into the margins and you’re discovering margin expansion. The gold miners haven’t had it so good. The margins they’re creating are actually probably the fattest, the best, the complete unbelievable margins they’ve ever had,” Lassonde told Kitco News.
Margin expansions and the stock price rally that the mining industry has seen the year shouldn’t dissuade new investors from typing the space, Lassonde believed.
“You have not missed the boat at all, even when the gold stocks are up double from the bottom. At the bottom, six months to a year past, the stocks have been very cheap that no one was serious. It’s exactly the same old story in the area of ours. At the bottom part of the market, there’s never more than enough cash, and at the upper part, there’s usually way a lot of, and we are barely off of the bottom part at this point in time, and there is a lot to go just before we achieve the top,” he stated.
The VanEck Vectors Gold Miners ETF (GDX) forty seven % season to date.
More exploration activity is predicted from junior miners, Lassonde said.
“I would claim that by next summer, I would not be shocked if we were to see exploration budgets up by between twenty five % to 30 % and the season after, I think the budgets will be up much more likely by 50 % to 75 %. I do believe there is likely to be a big rise in exploration budgets with the next two years,” he stated.
