When the Dow Jones to gold ratio retrace to 1:1, which it has on a few activities of the past, the gold price could 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 active in the mining industry. Due to the development of gold prices this season, combined with falling electricity costs, margins in 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 are seeing margin development. The gold miners have never had it very beneficial. The margins they’re producing are actually probably the fattest, the best, the complete incredible margins they have ever had,” Lassonde told Kitco News.
Margin expansions and the stock price rally that the mining sector has seen this year shouldn’t dissuade new investors by entering the space, Lassonde believed.
“You haven’t missed the boat at all, despite the fact that the gold stocks are actually up double from the bottom part. At the bottom level, six months to a year before, the stocks had been very low-cost that no one was interested. It is the same old story in the space of ours. At the bottom part of the sector, there is never enough cash, and also at the top part, there is always way a lot of, and we are barely off of the bottom at this point on time, and there’s a great deal to go just before we achieve the top,” he stated.
The VanEck Vectors Gold Miners ETF (GDX) 47 % year to date.
More exploration task is actually expected from junior miners, Lassonde believed.
“I would point out that by next summer, I would not be shocked if we were seeing exploration budgets in place by about 25 % to thirty % and the year after, I do think the budgets will be up much more likely by 50 % to 75 %. I do believe there’s going to be a huge rise in exploration budgets with the following 2 years,” he said.