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This is when gold price will hit $10k, according to mining legend Pierre Lassonde

Kitco News

The conflict in Eastern Europe is likely to be protracted, and energy prices will respond by rallying even higher from current levels, said Pierre Lassonde, chairman emeritus of Franco-Nevada and CEO of Firelight Investments.

“I think that Mr. Putin calculated that this was going to be an easy, quick win for him, to just roll into Ukraine and essentially put Humpty Dumpty back together, which was what he was trying to do. His plans are not turning out exactly as he had wished. With the Germans now changing tack and saying, we’re going to provide military help, that has changed the possible outcome of this war quite dramatically. The longer it lasts, the more profound the impact is going to be, particularly on the energy market. If this goes on for two, three weeks, a month, I think you’re looking at $200 oil,” Lassonde told Michelle Makori, editor-in-chief of Kitco News on the sidelines of the BMO Global Metals & Mining Conference.

Brent crude last traded at $100.14 a barrel, with WTI crude at $95.15 a barrel.

Lassonde’s comments come as Germany announced plans to provide 1,000 anti-tank weapons and 500 surface-to-air missiles to Ukraine as soon as possible, reversing a long-standing principle of not exporting weapons to conflict areas.

Lassonde noted that with higher energy prices comes higher, sustained inflation.

“We are seeing the same pressure today on inflation as we saw back in the 1970s”, he said. “From 1976 to 1981, you had inflation going up every year, we had interest rates going up every year, you had the dollar going up every year, and you had gold going up every year. That’s what we’re going to see for the next four years.”

On what the Federal Reserve is likely to do next in response to higher response, Lassonde said “it doesn’t matter.”

“The Fed is in a box,” he said. “They cannot raise interest rates more than 1.5% without putting the economy back in the toilet. They have nowhere to go. Mr. Powell has to feel like a porcupine in a balloon factory. It doesn’t matter because the real rate of interest, which is what really matters to gold, is going to stay deeply negative for the next four years, which is exactly what happened in the 1970s.”

Medium-term, gold is headed towards $2,200 to $2,400 an ounce, Lassonde said. Long-term, over the next five years, the Dow to gold ratio could converge to 2:1, should the Dow Jones contract by 20%-30%. This would imply a $10,000 gold price.

There have been two times in history, once in the 1930s, and once in the early 1980s, when the Dow to gold ratio was 1:1.

Lassonde said that a 1:1 ratio today would be too aggressive, as it would mean that stocks would have to crash dramatically from current levels, and with so much liquidity created by the central banks, a correction beyond 30% would be unlikely.

“I think we can see two to one,” he said. “At two to one, with a 30% pull-back, you’re looking at $10,000 [an ounce]. That’s doable. I think in the next five years.”

For Lassonde’s views on the equity markets and Fed monetary policy in response to the crisis in Ukraine, watch the video above.

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