Should the Dow Jones to gold ratio retrace to 1:1, that it has on several occasions of the past, the gold price could go up 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 involved in the mining industry. Because of the development of gold prices this season, fused with falling energy prices, margins in the business haven’t been better, he observed.
“As the gold price goes up, that disparity [in gold price and energy prices] will go directly into the margins and you are noticing margin development. The gold miners haven’t had it really good. The margins they’re generating are actually probably the fattest, the very best, the complete incredible margins they’ve ever had,” Lassonde told Kitco News.
The stock and margin expansions price rally that the mining industry has seen the year should not dissuade brand new investors from entering the space, Lassonde said.
“You have not skipped the boat at all, even when the gold stocks are up double from the bottom part. At the bottom, 6 months to a season ago, the stocks have been so affordable that nobody was curious. It is the same old story in our room. At the bottom part of the industry, there is not sufficient money, and at the top, there is always way a lot of, and we’re slightly off the bottom at this stage on time, and there is a lot to go before we achieve the top,” he stated.
The VanEck Vectors Gold Miners ETF (GDX) 47 % season to date.
More exploration activity is anticipated from junior miners, Lassonde believed.
“I would point out that by next summer, I would not be shocked if we were seeing exploration budgets set up by between twenty five % to thirty % as well as the year after, In my opinion the budgets will be up more likely by fifty % to 75 %. I do believe there’s likely to be a big rise in exploration budgets over the next two years,” he said.