Uncertain times lead investors to flock to so-called safe-haven assets. With a major military conflict, rampant inflation, geopolitical instability, and rising interest rates, there’s no shortage of issues to worry about right now. Moreover, given the recent tensions in the global financial system caused by the war in Ukraine and subsequent sanctions and asset seizures, global investors may start moving toward gold to protect wealth.
Even if the shift is relatively slight, all it will take is a minor shift in asset allocation in global portfolios, and gold is likely to do very well in the future. With this in mind, let’s take a look at ways to get exposure to gold.
A diversified way to play gold
Franco-Nevada ( FNV -0.95% ) offers investors a diversified way to benefit from the rising price of gold. Franco-Nevada’s exposure to gold doesn’t come through owning mines. Instead, the company purchases royalty and streaming rights in return for providing financing to support its mining partners. As such, the company has built up 405 separate worldwide assets.
Generating around 58% of its 2021 revenue from gold, a further 13% from silver, and 6% from platinum group metals, Franco-Nevada is a play on precious metals, gold in particular. Moreover, it’s highly diversified, with only one asset — First Quantum‘s Cobre Panama mine — representing more than 10% of its asset base.
Consequently, the company is not overly reliant on any one asset for its revenue. In addition, with 91% of its revenue coming from the Americas region, its current royalties and streaming revenue come from relatively less risky countries in the mining world.
The reduction of risk doesn’t just stop there. Miners typically have significant execution risks around their projects, notably when expanding operations. Therefore, each miner carries stock-specific risk. However, Franco-Nevada’s spread of assets helps to reduce that risk.
All told, the stock provides a useful option for investors looking for a relatively low-risk way to play a rise in the price of gold.
Go for pure exposure with an ETF
The SPDR Gold Shares ETF ( GLD -1.51% ) gives investors an excellent way to get exposure to the price of gold. The top chart below shows the ETFs performance compared to the S&P GSCI Gold index, which tracks gold futures. The bottom chart shows the correlation between the two, whereby a correlation of 1 is perfect. As you can see, it’s consistently very close to that over time.
That said, there are a couple of negative points. First, the ETFs expense ratio is 0.4%. That’s a relatively high figure compared to, say, the SPDR S&P 500 ETF Trust, which tracks the benchmark index with an expense ratio of just 0.09%.
Second, the IRS subjects many gold ETFs (including the SPDR Gold Shares ETF) to a higher rate of long-term capital gains tax of up to 28% — a significant consideration for long-term investors.
A golden giant
Newmont Mining Corp.‘s ( NEM -3.00% ) $66.8 billion market cap makes it the world’s leading gold company. In addition, the company’s substantive gold and other metals reserves and resources mean it will generate profits for many years to come. For reference, resources are minerals that could potentially be economically viable to extract. Meanwhile, reserves are known and proven to be financially viable.
According to Newmont’s presentations, Newmont has 96 million ounces (Moz) in gold reserves and 112 million Moz in gold resources. Moreover, it has 69 Moz in other (copper, silver, and other) reserves and 112 million Moz in resources.
To put these figures into context, management expects to produce 6 to 6.8 Moz in gold every year until 2026 and 1.3 to 1.6 Moz in other production every year until at least 2026. Based on current production, Newmont has 15 years of reserves and 18 years of resources in gold, as well as significantly more in reserves and resources for other minerals.
Given an uptrend in the price of gold over the long term, the value of Newmont’s reserves and…
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