"We Don't Know How To Replace The Vast Gold Deposits Of The Past"

Tyler Durden's picture

Authored by Christoff Gisiger via Finanz und Wirthschaft,

Pierre Lassonde, chairman of Franco-Nevada, expects production in the gold mining sector to decline significantly and foresees a price push for the yellow metal.

Few people have achieved more success in the mining business than Pierre Lassonde. The savvy Canadian is the co-founder and chairman of Toronto based Franco-Nevada (FNV 99.91 -0.94%) and pioneered the royalty business model in the gold mining sector based on the model used in the oil-and-gas industry. For investors this strategy has paid off golden returns. Today however, Mr. Lassonde points out that the gold industry hasn’t made any large discoveries for years which will put heavy upward pressure on prices in the years to come. He also thinks that US President Donald Trump is good for the yellow metal and that investors will fare better with gold than with stocks.

Mr. Lassonde, after a few difficult years gold seems to get its shine back. What’s next for the gold price?
Right now, there is more demand for paper gold than for physical gold. For instance, when you look at the refineries in Switzerland they will tell you that they’ve got the bouillon but they’re not busy. It’s not like a year and half ago when they had no stock and the gold bars basically were flying off their shelf the minute they were produced. So the pressure is in the paper gold market, the futures market.

What’s the reason for that?
Part of the recent strength of gold is what I call a risk premium on the world. There is a lot of speculation that has to do with the tensions around North Korea and President Trump. I don’t have a personal relationship with Mr. Trump but I know the man a little bit. When he was elected, my prediction was that he was going to tie up the US administration in a knot because he’s totally unpredictable. Nobody knows where he’s going and you cannot run a country that way.

And what does this have to do with gold?
Anyone else in the Oval Office would not make such outlandish statements as Mr. Trump makes. Gold is benefiting from that. After the US election, my prediction was that the dollar was going to suffer from Mr. Trump being in office. The price of gold is intimately related to the dollar. Gold is essentially the »anti-dollar»: If the dollar is strong, gold is weak and if the dollar is weak, gold is strong. So what we are seeing now is exactly what I have expected: a lower dollar and therefore a stronger gold price.

So where do you think the gold will go from here?
My view has been between $1250 to $1350 per ounce for this year and then slightly ramping up next year to around $1300 to $1400. But for gold to get into the next real bull market we need signs of inflation. So far we haven’t seen them. The Federal Reserve and other central banks have piled up huge reserves. But there is no inflation because the money is sitting within the banks and they are not lending it. Therefore, you don’t get a multiplier effect. But what happened recently in the US – the one-two punch with respect to the hurricanes »Irma» and »Harvey» – is going to require an enormous amount of reconstruction. This could finally move the needle on inflation. Also, Europe is doing much better. So at some point I suspect we are going to see inflation start to pick up a little bit.

What does this mean for the mining industry?
First of all, at a gold price of $1300 the industry by and large is doing well. I tell my peers: »If you are not making money at $1300 you should not be in this business.» So it’s a good price and you should be making good money. But the industry has had to shrink a lot. When the gold price dropped to $1000 at the end of 2015 everybody in the business was too fat. So the industry laid people off, consolidated, shrunk and many junior companies have been wiped out.

What are the consequences of that?
Production is declining and this is going to put an enormous amount of pressure on prices down the road. If you look back to the 70s, 80s and 90s, in every of those decades the industry found at least one 50+ million ounce gold deposit, at least ten 30+ million ounce deposits and countless 5 to 10 million ounce deposits. But if you look at the last 15 years, we found no 50 million ounce deposit, no 30 million ounce deposit and only very few 15 million ounce deposits. So where are those great big deposits we found in the past? How are they going to be replaced? We don’t know. We do not have those ore bodies in sight.

Why aren’t there any large discoveries anymore?
What the industry has not done anywhere near enough is to put money back into exploration. They have not put anywhere near enough money into research and development, particularly for new technologies with respect to exploration and processing. The way our industry works is it takes around seven years for a new mine to ramp up and then come to production. So it doesn’t really matter what the gold price will do in the next few years: Production is coming off and that means the upward pressure on the gold price could be very intense.

Why didn’t the industry put more money into exploration?
The industry has had to shrink a lot. Also, the boom in Exchange Traded Funds has changed the capital markets in a huge way: Companies that are part of an ETF get treated like chosen sons. But when you’re not in an ETF you’re getting marginalized. You become an orphan and the junior companies in particular have been completely orphaned.

How does that impact the funding of mining?
The thing with this industry is that you have to have an incredible amount of patience and you have to have money. And right now, it’s hard to get money. The risk appetite of investors has been gone for many, many years. If you are not one of the chosen few you can’t get money. You sit on the sideline and wait. In the past, more than half of the new discoveries have been made by junior companies. But they haven’t had any money now for like 10 years. So how are you going to find anything if you don’t fund the junior companies?

...

What’s your advice for investors who are interested in gold?
It’s very interesting. When you look over a hundred years back there are periods of 10 to 30 years where you would rather be in the stock market. But then, there are other periods from 10 to 15 years where you would rather be in gold.

In which period are we today?
Let’s take the Dow Jones  Industrial. To my mind, the Dow is essentially an expression of financial assets. Gold on the other hand is what represents hard assets: real estate, paintings and other hard assets. So when you look at the gold cycle from 1966 to 1980, you can see that the ratio between the Dow and the gold price at the beginning topped out at almost 28:1: It took 28 units of gold to buy one unit of the Dow. Then the long term trend reversed and the ratio went all the way down to 1:1. A similar cycle took place in the 30s. The Dow crashed from around 360 in 1929 to 36 in the next years. So it lost like 90% of its value. On the other hand, the gold price went from 20 to 34 and the ratio essentially bottomed out at almost 1:1, like at the end of 1966 to 1980 cycle.

And what does that mean for investors today?

Today, the Dow is over 22,000 and the price of gold is around $1300. This equals a ratio of almost 18:1 and you can clearly see that the trend is starting to roll over. So what does it mean if we go down to a ratio of 1:1 once again? The gold price would hit a big number and nobody is prepared for that. I don’t know any more than anybody else because it’s about the future. But it happened already twice in the past 100 years. So I think the odds that it’s going to happen a third time are pretty good. History does repeat itself, never exactly in the same fashion, but in the same form. Therefore, I would rather own a little bit more gold than not. So I think for an average investor, it should be the absolute rule to hold around 5 to 10% gold in your portfolio, like rule number one.

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Newsboy's picture

I thought rehypoethecation fixed that physical-gold-upply-limitation problem

Oh, my...

auricle's picture

For instance, when you look at the refineries in Switzerland they will tell you that they’ve got the bouillon but they’re not busy.

 

Yah? All I hear on KWN is the Swiss refineries can't get the gold. So, who's correct? 

Code Duello's picture

What?  The Swiss refiners are now holding soup as inventory?

TBT or not TBT's picture

Hypothecation techniques can multiply the amount of gold above ground., right?  

Mementoil's picture

Not everyone will understand that joke...

BobEore's picture

Couple of years back, Swiss refiners were overbooked...

with gold needing to b recast into formats desired by panda banksters... whose lootbags were full of their pickings from the ripe orchards of occidental bagholders who...

never seen it coming! As always... and falling in luv with the bogus China Meme theme pushed by scribblers workin for the $power... mistakenly believed the Chinese to be the 'new sheriff in Goldburg... rather than the GOLDEN VAMPIRE draining the lifeblood of the west with the help of their bullion bank buddies.^

And with that recasting work all done... and the bars transferred to the pandas new vaults in Londontown... awaiting the moment for detonating the west... when word comes down from HQ of international finance capital... in the sunny s e Med...\\swiss don't have much to do no more, sept sweep the floors for shavings, or check the toilets for surplus shiny!

Believe NOTHING of what yu read on KWN... or any other site dedicated to the psyop by which potential resistors become bagholdin serfs of the moneypower - once agin!

^& their bullion peddlin blogger buddies o course!

Latitude25's picture

Like everyone in the gold space, including you, there are truths and there are lies.  

liqmyace's picture

You read KWN?...Oh dear poor soul....

Michael Musashi's picture

Gold is for gays and dentists, and I don't mean this disparagingly.

Real men mine Bitcoin, and jerk off to dentist assistants....

 

 

 

Silver Savior's picture

Yeah man, my gold wedding ring is really gay. So gay that I am with a woman. lol. I like gold a lot so I like being gay I guess. Gay as in happy. 

Blue Steel 309's picture

Very Pozed, you GRIDS infested douchebag.

TheLastTrump's picture

Who asked us to?

 

Are you a shill, or genuinely concerned?

earleflorida's picture

seriousy,..does anyone have an opinion on the miners?

esp., NEM 

MozartIII's picture

Really good. Especially if most of these countries let the companies mine, minus the politics. Gold shortage issue will not be an issue. Russia and China can stack more with the rest of us.

runswithscissors's picture

WTF? are you fucking kidding me? gold is nearly worthless now. Only a relic from a barbaric past...go out and buy something valuable like bitcoins or beanie babies or stawks.

jthepapershredder's picture

Its not worthless, its still around 1300...just like it has been for the last four odd years.... yawwwnnnnn

I was gonna use my Bitcoin to buy some gold bullion.

And then i realized that that would be a waste of bitcoin

Silver Savior's picture

I used Ethereum to buy silver bullion. It was a good trade. I traded nothing for something. In my mind that's how I see it. I don't register crypto as actually existing. If it's value gets to a point I buy silver. Except for Ripple. I hang onto that because I think it's the only one that exists. It's a tool for banksters. 

Food Loaf Junkie's picture

I always prefered Boones Farm :-)

Silver Savior's picture

I have an opinion, I want the product not the miners. They can deal with future energy hyper inflation and lower ore grades all they want. It's all about the metal itself. Don't see it being good for miners even with higher metal prices.

MrPalladium's picture

Exactamondo!! Dwindling mines, lower grade ores, higher costs, fewer new discoveries equal higher bullion prices.

jimha's picture

Miners dirt cheap now. Look at the HUI to gold ratio. Buy them and hold for the reset.

T-NUTZ's picture

Gold, Bitchez!

 

Mustafa Kemal's picture

Yeah T-N, its almost like doom porn but with gold 

GOSPLAN HERO's picture

they lost me at "signs of inflation"

Code Duello's picture

The guy's a businessman with no economic perspective who thinks inflation  = higher precious metals prices.  If he were clued in he'd have said, "the ongoing deflation is and will be supportive of higher gold prices."

balz's picture

Cryptocurrencies Expert Predicts Cryptocurrencies to Outperform Other Currencies

lester1's picture

Can't find new projects?.. Comstock Mining ticker LODE is a Nevada based mining company sitting on 3.2 million oz of gold resources on just 10% of their explored land holdings near Lake Tahoe. The have plans for several underground mines. Big potential !

Code Duello's picture

Their holdings are in the Virginia Highlands and in proximity to the old Comstock lode  in Virginia City and nowhere near Lake Tahoe - except if one's talking about a regional location.

mayhem_korner's picture

"gold prices" will not rise so long as the EFT masters can print paper gold that the unwashed masses don't know is not backed 1:1 by physical. 

Silver Savior's picture

When I think of gold it's usually a coin most likely from the Perth Mint. A paper instrument to trade gold doesnt ever come to mind. 

mayhem_korner's picture

When I think of gold, I think of Yukon Cornelius and a big pile of barbarous relics I lost in a boating accident.

Bring back the Silver Bears, Tyler!

(back to my scotch)

Code Duello's picture

Yes, those cute snuggly 'toons who were so entertaining but so magnificently wrong.

Nobodys Home's picture

Kangaroos have a comparatively low premium lately.

GoldHermit's picture

This guy is sharp and I’ve owned FNV for awhile. A great business model.

wisehiney's picture

Hole in the ground with a liar on top.

 

But I still love his product.

GoldHermit's picture

It’s a hole in the ground with an idiot at the bottom and a crook at the top

The Duke of New York A No.1's picture

Easy = PAPER GOLD ... any quantity, any time.

Silver Savior's picture

Five to ten percent gold allocation? Are you fucking kidding me? I wish they would knock that bullshit off. It's way too low. They want to lose the other 90% of their portfolio to hyperinflation and crash. Bunch of dummies.

Code Duello's picture

Hyperinflation in the USA?  LOL.  Try hyper-deflation.

Silver Savior's picture

Costs in the USA are getting huge. I take it you don't get out much. Costs are rising everywhere. It's already at around 10% a year. It would not take much to tip it into hyper inflation. I don't see deflation in real terms anywhere. I don't know where you guys come up with this. 

moorewasthebestbond's picture

Show me the gold-Ruble and the gold-Yuan.

Code Duello's picture

Since end-2008 XAU:USD up 1.7x; XAU:RUB up 3.8x; XAU:RMB up 1.7x.  RMB is pegged to USD so no surprise that both currencies vs XAU register the same change.

Latitude25's picture

Exactly.  Until that happens all this East vs West conflict is nothing but a cover for complicity.

milanolarry's picture

So long as the US government keep turning a blind eye to manipulation by bullion banks, tightness in physical gold market does not matter. The only important thing in PM market is the US's attitude towards gold. If you see a surge in gold prices in coming years, remember, it has not much to do with the dynamic in the market. It is a change in the US's policy.

jimha's picture

China will be setting the gold price not the U.S.