Chris’ note: As we told you yesterday, my close friend E.B. Tucker believes gold is primed for a big rally.
He sees it taking out its all-time high of around $1,900 per ounce next year. From there, E.B. expects it to reach $2,200 – a 50% rise from today’s level.
And he shared the best way to take advantage: gold royalty companies. They’re a great way to “juice” your returns while this boom gains momentum.
That’s because a gold royalty company doesn’t actually produce any gold. Instead, it lays claim to a small percentage – a royalty – on the gold that gold miners produce.
So today, we’re handing things over to E.B. once again to tell you about one company that illustrates just how lucrative the gold royalty business is… and he’ll also share another company that’s his top pick to consider investing in today…
By E.B. Tucker, editor, Strategic Trader
100-to-1 gains don’t come along very often… even for the best investor.
Twenty years ago, a fledgling royalty company bet $8 million on what it thought might be a decent gold mine one day.
To date, it counts over $800 million in royalty payments from that one purchase. It turned out to be more than a “decent” bet.
I’m talking about a company named Royal Gold (RGLD).
Royal Gold went public in the early 1980s. It fumbled between energy and metals in the early days. It didn’t make the $8 million transformational bet until 1999. As you can see below, owning the company’s shares during its first 20 years didn’t do much for investors.
It’s the next 20 years that turned the company from small to giant.
In 1999, Royal Gold acquired royalties on the Cortez mine in Nevada. This was important for two reasons. First, it meant Royal Gold acquired an interest in future gold production without an obligation to invest in that production. Second, it made a bet on gold, which was in the running for the world’s least popular asset at the time.
Royal Gold CEO Tony Jensen recently told a local Nevada newspaper the company was 90% tied to the Cortez royalties in 2003, just around the time he took over. Its market cap was 95% less than it is today.
The Power of Gold Royalties
Nailing the 100-bagger is one thing. In this case, the $800 million payday hasn’t come in equal chunks of $40 million per year. It keeps growing.
As time went on, the miners working on Royal Gold’s claims found more and more gold. The gold those companies pulled out of the ground sold for more and more. Royal Gold kept earning the same percentage of each ounce sold.
That’s because gold production on its royalty claim keeps growing. As the mine gets larger, the companies mining gold on the property keep finding more. The royalty holder gets a piece of every ounce mined.
It’s part of what makes gold royalties so compelling. The owner earns a percentage of someone else’s hard work. Best of all, the royalty holder isn’t responsible for investments in personnel or equipment. It doesn’t get stuck holding the bag if things don’t work out. Instead, it has the right to a fixed percentage of each ounce of gold ever removed from the property.
So Royal Gold’s payout had two forces driving it: growing investment by mining companies operating on its property and a rising gold price. Here’s what the stock price did:
I think it’s the best example of how valuable it can be to hold a future claim on profits without an obligation to invest additional funds.
And there’s another reason you should think about investing in royalty companies: They can help lower your risk.
Your Best Defense
Consider this… During gold’s last bear market, from August 2011 to July 2014, the metal dropped 30%. But royalty companies actually rose a modest 6% during the same time frame.
That’s because royalty companies don’t spend money mining gold. Sure, their royalty payments are a bit smaller, but they’re not facing a huge, unavoidable cost burden.
That means royalty companies benefit from a rising gold price and play a bit more defense when it falls.
It makes gold royalty companies a no-brainer investment every gold bug should have in their arsenal.
So consider buying gold royalty companies to profit during this bull market. One of my top choices 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.
Editor, Strategic Trader
P.S. Right now might be the best opportunity you’ll ever see in the gold sector.
That’s because I just discovered a little-known anomaly that has the potential to rack up gains as high as 52,900% starting in December. It’s even more explosive than gold miners or royalty companies.
It’s not a stock, bond, or ETF. And it has nothing to do with options, futures, or cryptos… but it can be bought easily through any broker.