By Chris Reilly, managing editor, Casey Daily Dispatch
If you’ve been following the Dispatch, you know one of our core recommendations has been on a tear this year…
I’m talking about gold – the ultimate “safe haven” asset.
It’s up 18% since May… and recently crossed $1,500 an ounce.
As we’ve been saying all year, this is just the beginning. We’re entering a new gold bull market – and now’s the time to get positioned.
Yesterday, International Speculator editor Dave Forest showed us how you can profit by betting on junior gold mining stocks.
Today, we’ll reveal another way to play this coming boom… one E.B. Tucker says every gold investor should consider.
• Remember, E.B. predicted this rally back in December last year…
At the time, gold was sitting at just $1,237… down 35% from its 2011 peak. But E.B. said it would hit $1,500 an ounce this year. And his call was spot-on.
Before working in the newsletter business, E.B. comanaged a precious metals equity investment fund. Today, he serves on the board of a successful gold company.
In short, he has deep connections in the business. He sees what’s really going on behind the scenes… before the mainstream media catches on.
And now, he’s predicting gold will take out its previous all-time high of $1,900 an ounce next year. From there, it’s off to the races…
• During a recent conference held by our group publisher, Legacy Research, he shared his favorite way to take advantage…
As part of a special gold panel with natural resource investing legend Rick Rule, our very own Dave Forest, and The Bonner-Denning Letter coauthor Dan Denning, E.B. told the audience to consider investing in “gold royalty” companies.
E.B. (far right) explains why royalty companies should be in every gold investor’s toolkit
This type of company doesn’t actually produce any gold. Instead, it lays claim to a small percentage – a royalty – on the gold that gold miners produce.
E.B. says these companies are the closest thing to owning a “toll road” as you can get…
Anybody that goes to the beach over a toll road pays that toll or else they’re forced to swim. There’s no other way to get there. And that’s what it’s like to have a royalty.
What happens is when these mining companies put $100 million into the mine to open up the shaft, they’re going to keep going and going. And if they find more gold, which they probably will, the royalty companies get a percentage of that… and they pay nothing for the effort of these miners to continue looking for new properties. You have a royalty on all future findings.
E.B. went on to say that right now, we have a “generational opportunity.” More from E.B.:
There’s an awareness curve here where even people in the gold business are overlooking the value in these companies right now. Every single dollar that gold moves increases the value of that royalty portfolio. I think people will wake up and see that soon – and you’ll see dramatic returns with low risk.
Rick Rule agreed with E.B., saying royalty companies have the best operating margins in the precious metals business… while being the least capital-intensive.
Simply put, gold royalty companies are where you want to be right now.
• Take a look at how they’ve fared compared to gold this year…
In the chart below, we tracked the average return of four of the world’s biggest gold royalty companies – Franco-Nevada (FNV), Wheaton Precious Metals (WPM), Royal Gold (RGLD), and Sandstorm Gold (SAND) – against the price of gold.
As you can see, royalty stocks have more than doubled the return of gold.
But as E.B. mentioned above, royalty companies don’t just outperform gold…
• They also can lower your risk…
Look at how they performed during gold’s last bear market, from August 2011 to July 2014.
As you can see, despite a brutal 30% downturn in gold, royalty companies actually rose a modest 6% during the same time frame.
Remember, gold royalty companies are not involved with actually digging gold out of the ground. This is important, and a big reason why they still tend to outperform while gold and gold miners fall.
Here’s E.B. again:
When the price of gold falls, mining companies still have to pay huge sums for the workers and equipment needed to get gold out of the ground. Selling that gold for less than the cost of mining it can send stock prices plummeting.
As you can see in the chart above, a falling gold price gives royalty companies bruises, while it gives gold mining companies broken bones.
That’s because the royalty company doesn’t spend money mining gold. Sure, its royalty payments are a bit smaller, but it’s not facing a huge, unavoidable cost burden.
All that together means royalty companies benefit from a rising gold price and play a bit more defense when it falls.
• This is why E.B. says these stocks are the ultimate “layup trade”…
A no-brainer. An investment every gold bug should have in their arsenal.
So consider buying gold royalty companies to profit during this bull market.
E.B.’s top choice is Franco-Nevada (FNV). It’s the largest company in the sector and one of the safest ways to take advantage of the coming boom.
Managing Editor, Casey Daily Dispatch