LAWRIE WILLIAMS: Gold could be at $20,000 in 2-5 years says Pierre Lassonde – an analysis.
Pierre Lassonde is one of the doyens of the gold mining sector – and an eternal optimist on the future of the gold price. This from his entry in Wikipedia: In 1982, he co-founded, Franco-Nevada Corporation, the first publicly traded gold royalty company. From inception to February 2002 when the company was sold to Newmont Mining for US$3.2billion, Franco-Nevada provided its shareholders a 36% annualized rate of return. Lassonde served as President of Newmont from February 2002 to 2007 and Vice-Chairman in 2007. In 2008, he revived Franco-Nevada by joining forces with David Harquail and the rest of the original Franco-Nevada team to acquire Newmont’s royalty portfolio. The born-again Franco-Nevada became the largest mining IPO (Initial Public Offering) ever offered on the TSE (Toronto Stock Exchange) at that time. He was also responsible for founding a couple of other successful gold exploration/mining start-ups.
In other words Lassonde has had a remarkably strong track record in the gold and gold mining sector He wrote a book on investing in gold and precious metals stocks = The Gold Book: The Complete Investment Guide to Precious Metals and also served as the chairman of the World Gold Council from 2005-2009. He has always had a strong belief in the future of gold and the gold price, but perhaps has not yet seen his overall, highly optimistic, gold price predictions fulfilled – yet. But although we think his tentative forecast musings highly optimistic, his views should certainly not be ignored. He has not actually predicted a $20,000 gold price per se as is often headlined by the media, but a relationship between the Dow and the gold price which, under some circumstances could lead to this kind of level.
Lassonde was recently interviewed by Daniela Cambone of www.kitco.com – see: Lassonde Video Interview, and in the interview he re-iterated his long term view that gold could achieve parity with the Dow within 2-5 years. Whether that means $10,000 gold, $15,000 gold or $20,000 gold, or some other level, depends on the performance of the Dow Jones Industrial Average which is at around 24,000 as I write, but we anticipate some further substantial falls as the Covid-19 virus continues to decimate the U.S. and global economies. Gold closed at around $1,680 ahead of the Easter weekend and was showing some signs of continuing strength – not before time - but would still have to move up far faster than it has of late, and/or the Dow to fall enormously, should parity between the two be achieved.
Lassonde has promoted his theory of gold and the Dow achieving parity at some time in the relatively near future for some years. But it is just possible that with the downwards pressure on equities, and the upwards pressure on the gold price, that the timing could be right for at least a sharp closing of the current parity gap. However parity still seems to this observer to be a very long way off and would probably need the Covid-19 crisis to continue for several years for this to happen. 2-5 years is, in our opinion, something of a stretch!
Nevertheless some analysts had forecast a huge correction in the Dow before global economies had been hit by the virus. Some had even suggested a 90% fall but we think this is somewhat far- fetched. But we do see a 60% fall from its peak for the Dow as being within the bounds of possibility, which would bring it down to around 12,000 and a $12,000 gold price necessary to achieve parity with the Dow at that level this doesn’t seem quite so improbable. Perhaps unlikely in our view, but certainly within the kind of range some of the out-and-out gold bulls have been predicting!
The recent performance ahead of the Easter break in the Western equities markets continues to confound us. It is estimated that the U.S. now has over 16 million unemployed and rising – the worst figure since the Great Depression and getting worse by the day. Coronavirus dead are being buried in mass graves – unheard of in any Western Democracy outside war time. The coronavirus incidence, and number of deaths in the U.S. is getting worse – not better. Even if virus incidence peaks in the next few days, weeks – or months even – the U.S. economy is being devastated, and it’s a similar situation in Europe. And yet equities markets keep on seeing occasional recoveries from time to time. Madness!
Investors seem to be convinced that Fed and government bailouts will save the day. They may do so for the bankers and elites of this world but not for the vast majority of the population which falls outside these categories. Things will get worse before they even begin to get better – and even when they do improve, the vast debts being taken on by governments to mitigate the economic effects will only serve to store up global economic problems for many years ahead.
The only obvious assets showing any growth at all in the current year to date are primarily gold and palladium – and the latter is in something of a bubble and hugely vulnerable, in our opinion, as its principal market has been absolutely devastated. We reckon gold will continue to show strength and equities will start to fall again, but whether gold and the Dow get to assume parity as Lassonde suggests, still remains an outside chance – but no doubt we’ll come back to that as the shakeout persists.
10 Apr 2020