From the desk of Ian L. Cooper
If you’re a longtime reader, you know I want to own what’s cheap, hated and overlooked. It’s a strategy that works with just about an asset out there.
We can take advantage of gold’s rally four ways.
- One, we can buy physical gold itself.
- Two, we can take a position in gold ETFs to diversify at less cost.
- Three, we can take advantage of gold mining royalties.
One of the best ways to trade gold is by picking up a gold ETF.
Not only does an ETF allow for diversification, you can buy it for less. For example, we can buy the iShares Gold Trust (IAU) for $12.73 a share. If we were to buy 100 shares, it would cost us $1,273, which is less than the current price of gold. Plus, given the history of this ETF, upside doesn’t appear to be a problem.
Or, we could buy a gold ETF such as the VanEck Vector Junior Gold Miners ETF (GDXJ) for $33.68. If we buy 100 shares, it would cost us $3,368. The GDXJ holds 72 stocks, including Kinross Gold Corporation, Gold Fields Ltd., Iamgold Corporation, Hecla Mining, and Seabridge Gold Inc. If we were to buy 100 shares of each of the 72 ETF holdings, it would clearly cost us more than $3,368.
We’re sure you’d agree that buying the ETF would make a lot more sense.
A second way is to invest in a company that earns royalties on miners.
One such company is Royal Gold (RGLD).
Royal Gold, Inc., together with its subsidiaries, acquires and manages precious metal streams, royalties, and related interests. It focuses on acquiring stream and royalty interests or to finance projects that are in production or in development stage in exchange for stream or royalty interests, which primarily consists of gold, silver, copper, nickel, zinc, lead, cobalt, and molybdenum. The company holds interest in 191 properties on 6 continents, including interests on 40 producing mines and 18 development stage projects.
RGLD takes a position in gold projects of major miners, and then earns a royalty on the gold that those mines produce. What makes a company like this so interesting is that it earns money regardless of what happens to gold prices – making it a “safer” idea.
Better yet, the company holds positions in 39 producing mines at the moment. One of those is the Peñasquito mine in Mexico. The company owns a 2% royalty on the mine, which holds nearly nine million ounces of gold reserves.
Another company takes the risk of the mine while RGLD sits back and collects 2% royalties.
As you can see in the chart, the strategy has worked out very well for it.