Pierre Lassonde, co-founder and chairman of Franco-Nevada Corp. (FNV:TSX; FNV:NYSE): I think today’s gold market is reminiscent of the 2001–2004 era. Gold bottomed around August of 2001 at $250/ounce ($250/oz) when the gold stocks recorded their absolute lows. I became president of Newmont Gold Co. at that point, and we were selling for $18/share and our cash costs were $160/oz.
Over the next three years, gold went up to $450/oz, then $500/oz. Our stock price went up to $62/share because our cash costs stayed exactly the same. That allowed us to deliver real shareholder value. After that, producers’ costs have been going up atrociously every year, and companies have struggled to deliver anything to shareholders. But now, similar to 2001, cash costs are going to be down anywhere from 5% to 15% due to the oil price drop, so all the producers should be able to hold the line next year and maybe the year after. That makes this a great opportunity.
I turned bullish about the end of October after someone dumped $1 billion worth of gold at 2:00 a.m. to try to smash the floor price. It didn’t work because the Chinese and the Indians bought all they could get their hands on. That was the turning point that showed a floor was in, and 2015 is going to be sideways, with the surprise likely to be on the upside. The change of heart of the Swiss central bank to stop pegging its currency to the euro says that there is a lot of trouble brewing in Europe. Combined with negative interest rates on European bonds, people are going to start wanting to buy gold.
At times like this, I like …read more