Should the Dow Jones to gold ratio retrace to 1:1, that it’s on a number of activities of the past, the gold price could very well climb 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 active in the mining market. Due to the development of gold prices this season, coupled with falling electricity costs, margins of the business have not been better, he seen.
“As the gold price goes up, that difference [in gold price as well as energy prices] will go directly into the margins and you are noticing margin expansion. The gold miners haven’t had it so healthy. The margins they’re producing are probably the fattest, the best, the complete incredible margins they’ve previously had,” Lassonde told Kitco News.
Margin expansions and the stock price rally that the mining market has seen this year shouldn’t dissuade new investors from keying in the room, Lassonde said.
“You have not missed the boat at all, despite the fact that the gold stocks are up double from the bottom part. At the bottom level, six months to a season ago, the stocks had been so cheap that no one was serious. It is the same old story in our space. At the bottom part of the industry, there is not sufficient cash, and at the top, there’s usually way a lot of, and we are slightly off the bottom part at this moment on time, and there’s a lot to go just before we get to the top,” he said.
The VanEck Vectors Gold Miners ETF (GDX) forty seven % season to date.
More exploration action is anticipated from junior miners, Lassonde believed.
“I would say that by following summer time, I wouldn’t be shocked if we were to see exploration budgets up by about twenty five % to 30 % as well as the year after, I do think the budgets will be up more likely by 50 % to seventy five %. I do believe there is likely to be a big increase in exploration budgets with the following 2 years,” he mentioned.