If the Dow Jones to gold ratio retrace to 1:1, that 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, as reported by Pierre Lassonde, chair emeritus of Franco-Nevada.
Lassonde retired from the board of Franco-Nevada this year, but is still actively involved in the mining market. Because of the expansion of gold prices this season, fused with falling electric power costs, margins of the industry haven’t been better, he noted.
“As the gold price goes up, that disparity [in gold price and energy prices] will go directly into the margins and you’re noticing margin development. The gold miners have never had it very good. The margins they’re generating are actually the fattest, the best, the absolute unbelievable margins they’ve already had,” Lassonde told Kitco News.
Margin expansions and the stock price rally that the mining industry has noticed the season should not dissuade new investors from typing the area, Lassonde said.
“You haven’t skipped the boat at all, even though the gold stocks are actually up double from the bottom part. At the bottom level, 6 months to a season ago, the stocks have been extremely affordable that no one was curious. It’s exactly the same old story in our space. At the bottom level of the market, there is not enough cash, and also at the top part, there is usually way excessively, and we are slightly off of the bottom level at this moment on time, and there is a great deal to go before we get to the top,” he stated.
The VanEck Vectors Gold Miners ETF (GDX) forty seven % year to date.
Far more exploration task is expected from junior miners, Lassonde said.
“I would claim that by following summer time, I wouldn’t be surprised if we had been seeing exploration budgets up by about twenty five % to 30 % and also the season after, I believe the budgets will be up more likely by fifty % to 75 %. I do believe there is likely to be a huge surge in exploration budgets with the next two years,” he stated.