Should the Dow Jones to gold ratio retrace to 1:1, that it has on several activities of the past, the gold price might 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 active in the mining market. Because of the development of gold prices this year, combined with falling electric power prices, margins of the business haven’t been better, he noted.
“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 haven’t ever had it so good. The margins they’re generating are probably the fattest, the very best, the complete unbelievable margins they’ve previously had,” Lassonde told Kitco News.
The stock and margin expansions price rally that the mining market has noticed the year should not dissuade new investors from entering the room, Lassonde believed.
“You have not skipped the boat at all, even when the gold stocks are actually up double from the bottom part. At the bottom part, six months to a season before, the stocks were so affordable that nobody was curious. It is the same old story in our room. At the bottom of the industry, there’s never sufficient money, and also at the top, there’s usually way too much, and we are barely off of the bottom part at this point on time, and there’s a great deal to go just before we reach the top,” he said.
The VanEck Vectors Gold Miners ETF (GDX) 47 % year to date.
More exploration activity is predicted from junior miners, Lassonde claimed.
“I would claim that by next summer, I wouldn’t be surprised if we were seeing exploration budgets set up by about twenty five % to 30 % and the year after, I believe the budgets will be up much more likely by fifty % to seventy five %. I do believe there’s going to be a major rise in exploration budgets over the next 2 years,” he said.