On Monday, I wrote about how higher oil prices chip away at the profits of large cap gold miners.
I also mentioned that companies on the pre-revenue, pre-production side of the gold mining business (like many of our junior and mid-cap holdings in GP10X) can keep their upside even as oil prices rise.
But I didn’t mention a 3rd type of gold stock that can prosper even if oil prices surge.
I understand that the gold mining business can seem tedious and fraught with danger from all sides. And it’s true: gold mining has plenty of challenges.
So if you’re looking for a simple way to profit from gold stocks that don’t have exposure to things like oil prices or war or the dozens of other challenges that gold miners face, the answer is to focus on gold royalty firms.
These companies have zero exposure to oil price movements. They’re obviously somewhat sensitive to moves in the price of the underlying metals, but their long term profitability is not entirely reliant on metals prices because of how profitable they tend to be.
These companies are unique business not just in the world of gold mining. That’s because they have such low overhead, very few employees, no capex, no real estate, no inventory or equipment.
That means they can reinvest their cash flow back into new opportunities. They’re the closest thing to a compound wealth machine you can own in the stock market.
And their business model is super simple. They make up front capital investments in gold and silver miners and get lifetime streams and royalties that typically multiply their initial stake.
The best part: they’re almost all wildly undervalued right now.
About ⅓ are selling at a 50+% discount to my target price.
Some of the companies I cover raise their dividends every year. Many own a piece of the world’s best gold mines – that will pay them back for years to come.
This latest conflict in Iran has pushed gold stock prices down – even some of the royalty firms I cover. But it’s nothing more than a massive buying opportunity – because as I mentioned: these firms don’t have oil price exposure. They get paid a portion of the production from gold mines, not the profits.
So even if a gold mine is barely profiting, the royalty firms simply take their percentage of production.
And even if a gold mine changes hands and is sold, acquired or split apart – the royalty remains attached to the production of that mine for the terms of the royalty, which is typically a lifetime term.
As long as gold is coming out of the ground from the world’s best gold mines, these royalty firms get their cut.
As oil prices continue to jump around, it’s going to spook investors out of gold stocks at the worst times. And it’s also going to create buying opportunities for shrewd investors who see the long term value in this misunderstood part of the gold market.
This is your chance to get involved with the world’s best gold stocks before the market comes to its senses.
Don’t miss it.
Best,
Garrett Goggin, CFA, CMT
Lead Analyst and Founder, Golden Portfolio