Should the Dow Jones to gold ratio retrace to 1:1, that it’s on a number of activities in the past, the gold price might ascend 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 working in the mining industry. Due to the expansion of gold prices this season, coupled with falling electricity costs, margins in the trade have not been better, he observed.
“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 discovering margin expansion. The gold miners have never had it really beneficial. The margins they are generating are 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 sector has noticed the year should not dissuade new investors by keying in the room, Lassonde claimed.
“You haven’t skipped the boat at all, despite the fact that the gold stocks are actually up double from the bottom. At the bottom level, 6 months to a year ago, the stocks were so inexpensive that nobody was curious. It is exactly the same old story in the room of ours. At the bottom of the industry, there is never sufficient money, and at the top part, there is always way excessively, and we are slightly off the bottom part at this point in time, and there is a lot to go just before we achieve the top,” he said.
The VanEck Vectors Gold Miners ETF (GDX) forty seven % season to day.
More exploration action is actually predicted from junior miners, Lassonde said.
“I would point out that by next summer time, I would not be shocked if we were to see exploration budgets set up by about 25 % to 30 % and also the season after, I believe the budgets will be up more likely by 50 % to 75 %. I do believe there is going to be a major increase in exploration budgets over the next 2 years,” he mentioned.