When the Dow Jones to gold ratio retrace to 1:1, which it has on a number of occasions 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 sector. Because of the expansion of gold prices this year, merged with falling electric power prices, margins in the business haven’t been better, he noted.
“As the gold price goes up, that disparity [in gold price and energy prices] will go right into the margins and you’re seeing margin development. The gold miners have never had it really good. The margins they are creating are actually the fattest, the very best, the absolute incredible margins they have already had,” Lassonde told Kitco News.
Margin expansions and the stock price rally that the mining industry has observed the season should not dissuade new investors by keying in the area, Lassonde claimed.
“You have not missed the boat at all, even when the gold stocks are up double from the bottom level. At the bottom, six months to a year ago, the stocks were extremely cheap that no one was curious. It is the same old story in our area. At the bottom part of the sector, there is not enough money, and at the top part, there is always way excessively, and we’re barely off the bottom at this stage on time, and there is a great deal to go before we achieve the top,” he mentioned.
The VanEck Vectors Gold Miners ETF (GDX) 47 % season to date.
More exploration activity is anticipated from junior miners, Lassonde claimed.
“I would claim that by next summer, I wouldn’t be surprised if we were seeing exploration budgets in place by about 25 % to 30 % and also the year after, I do believe the budgets will be up more likely by fifty % to seventy five %. I do believe there’s likely to be a big rise in exploration budgets with the next two years,” he said.