Investing in Gold, We Like Miners and Royalty Streamers

Investing in Gold, We Like Miners and Royalty Streamers

$XAU, $XAG, $GLD, $SLV, $GOLD, $MTAFF

For millennia man has looked at gold as a store is value. And now when the economy is questionable and when the stock market is volatile, many investors turn to gold as a safe-haven and portfolio insurance.

So, if gold is on your mind now, check your goals and long-term strategy, to make sure it fits into your portfolio.

To know that it is very important to understand how investing in gold works. Like any investment, you run the risk of loss, and that risk is bigger if you do not know what you are doing.

So, here is a primer on investing in gold, as follows:

Some investors like investing in gold mining stocks and royalty streamers because they offer exposure to gold. It is important to note that you are investing in stocks and not physical gold. If you like the idea of exposure to gold, but do not want to buy the physical precious Yellow metal, gold stocks can be a good choice. But, you will have direct ownership of the gold, you will have direct ownership in the gold mining company.

Then there is Paper gold, this method can make the investment process a little simpler. However, understand that when you invest in a gold certificate, you do not actually see or hold the gold. You are thought to have it, but your evidence is just paper. If you decide to invest in gold certificates, it’s important to verify the broker. Make sure they are trustworthy, avoid the scams.

When you invest in physical gold, including coins and bullion, you need a safe place to store it. If you prefer to manage the storage yourself, buy a strong, reliable safe for your gold. If you cannot store it on your own premises, you can use a safety deposit box at a local bank or credit union. Or your can store your lot at facilities designed to store large amounts of gold. If you store your gold off-site, you have to be prepared to pay a fee, which goes against your potential gains.

As you invest in physical gold, must choose between gold bullion and gold coins. Understand that with certified coins, while the gold content and fineness matters, their rarity is a factor as well. You want to get certified coins that have been verified by another party or the minter. Because their value is based on their rarity, they can be similar to collector’s items. So, even if gold bullion loses value because a drop in the spot price of gold, your certified gold coins may well maintain their value, or increase in value. Before you decide to invest in bullion or gold, understand how each works, and what your goals are.

One of the advantages to investing is that you have the opportunity to receive a favorable tax rate. Long-term capital gains are often taxed at a lower rate than your own marginal rate. However, this rate does not apply to physical gold. If you sell your gold bullion or coins, you will be taxed at the collectibles capital gains rate, which is currently 28%. Depending on your marginal tax rate, this may or may not be an advantage. No matter the situation you should be aware of the tax rate and prepare accordingly if you decide to sell some of your gold.

When you buy gold, you do not always pay the price stated. Sometimes you pay a premium. You might have to pay a markup when you buy the gold. As a result, your gains are not realized until you overcome the premium paid. Plus, if you are paying to store your gold, that cost, added to the premium, reduces profits. Before you invest, make sure you understand the costs, from the premium to storage to the higher capital gains rate. All of that should figure into how you fit gold into your portfolio.

Investing in gold can act as a hedge against risk or against inflation. Many investors like it because it has the potential to be a store of value when stocks crash or the economy tanks.

Often, gold moves inversely to USDs, which also makes it attractive. But, gold does not always behave like investors expect. Sometimes it does not move inversely to the Buck, and sometimes gold drops at the same time the stock market does. While it can be a good choice, realize gold, like any investment, is impacted by perceived value and it does not always act like you think it should do.

The convenient way to invest in gold is in the miners and royalty streamers, here is how that works, as follows:

There are lots of gold and mining and royalty streaming companies to invest in plus there are a few ETFs that hold a basket of miners.

The advantage of miners is that they get around a lot of the problems of precious metals investing that I noted above. As the big miners produce cash flows and often pay dividends.

Know then, that gold miners are levered against the price of gold. Whereas the price of gold might double + or get cut in half over a period of years, gold miner stock prices could go up or down 10X or more. It is a great way to invest if you picked the right 1’s, I bought Barrick (NYSE:GOLD) in the early 80’s when Peter Monk started, it was $0.09/share, today it is the world’s largest gold mining company, and a core position.

When it comes to precious metal companies, many savvy investors go with gold and silver streaming/royalty companies. So, if you are new to gold and silver, and looking into how to invest these precious metals, these companies are worth a serious look.

Rather than operating mines themselves, streaming/royalty companies finance mines. They provide cash up front to develop a mine, and in exchange once the mine is active they get to buy a certain amount of gold and silver at far below market prices, or get a percentage of the output.

A streaming/royalty company manages a portfolio of existing streams and continually makes new investments to acquire future streams.

Gold and silver miners like to do streaming/royalty deals because if they issue normal debt, they are stuck with it regardless of the price of gold or silver. But by receiving money in exchange for a streaming/royalty deal instead, their streaming/royalty obligation is levered to the price of the precious metal they are mining. In other words, it is like their debts go up and down with the price of the metal and with their profits, so it is less risky for them.

For investors, streaming/royalty companies are a less risky and less levered way to make money from gold compared to actual miners. Plus, unlike miners, streaming/royalty companies have historically outperformed the price of gold.

There are only a handful of publicly-traded precious metal royalty/streaming companies, and the newest 1 that we follow is Metalla Royalty and Streaming (OTCMKT:MTAFF).

This companies is young, has a large share of potential future streams that are under development and look undervalued in here. It is riskier, but well managed and if it’s investments work out, the Northside potential is large, very large.

Have a terrific Holiday week.

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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