Gold has long been viewed as a safe haven investment, and with the S&P 500 index trading near all-time highs it’s understandable if you want to add some to your portfolio. But how do you go about doing that? Gold bullion, gold miners, gold-linked ETFs? Actually, one of the best ways to get precious-metals exposure is with streaming and royalty companies like Royal Gold (NASDAQ:RGLD), Franco-Nevada (NYSE:FNV), and Wheaton Precious Metals (NYSE:WPM). Here’s a look at each.
1. Big on gold
Royal Gold generated roughly 75% of its revenue from gold in fiscal 2021, which ended in June. The rest came from silver, copper, and other metals. That gives it the highest exposure to gold of this trio. But the interesting thing about this company, and the other two names here, is that Royal Gold doesn’t mine for gold. It gives cash up front to miners in exchange for the right to buy the commodity in the future at reduced rates, which is called streaming.
Miners like this arrangement because they can raise capital (often for building or expanding mines) without tapping the capital markets or going to a bank. Royal Gold likes it because it locks in low metals prices. As an example, a recent streaming deal pegged the company’s costs at 20% of gold’s spot price until certain production targets are hit, and then 40% thereafter.