If the Dow Jones to gold ratio retrace to 1:1, which it has on a number of occasions in the past, the gold price could go up to $15,000 to $20,000 an ounce assuming the metal catches up to the Dow, based on 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. Because of the expansion of gold prices this year, fused with falling energy costs, margins of the trade have never been better, he noted.
“As the gold price goes up, that disparity [in gold price and energy prices] will go directly into the margins and you are seeing margin expansion. The gold miners have never had it extremely good. The margins they’re creating are actually the fattest, the best, the absolute incredible margins they have ever had,” Lassonde told Kitco News.
Margin expansions and the stock price rally that the mining market has seen the year should not dissuade brand new investors from typing the room, Lassonde believed.
“You haven’t skipped the boat at all, even though the gold stocks are up double from the bottom. At the bottom, 6 months to a season ago, the stocks have been very inexpensive that no one person was interested. It’s the same old story in our space. At the bottom part of the industry, there is never enough cash, and also at the upper part, there’s usually way too much, and we are slightly off the bottom part at this stage in time, and there’s a great deal to go just before we get to the top,” he mentioned.
The VanEck Vectors Gold Miners ETF (GDX) forty seven % season to day.
More exploration action is expected from junior miners, Lassonde believed.
“I would say that by next summer time, I would not be shocked if we were to see exploration budgets in place by between twenty five % to 30 % and also the season after, In my opinion the budgets will be up more likely by 50 % to 75 %. I do believe there’s likely to be a major rise in exploration budgets with the following two years,” he mentioned.