How to profit from a gold bull market: 3 strategies
Here below is the script of the youtube video posted on 10th Jan 2022 on the Avanguardia Investment Media channel
You can watch the video here: https://youtu.be/Cz_P7d8B4y0
Hello everyone, my name is Giorgio, founder of Avanguardia Investment media, and today, I am going to show you the best ways to make money in the next gold bull market.
Now, let's say that you are concerned about the current state of the economy. You notice that most countries worldwide are highly indebted and are destroying their currencies by printing money. You see that inflation is running hot, and most countries in the world are running budget deficits. You look at the stock market, and it's full of crazy high valuations that remind you of the dot com bubble. Where do you put your money?
Fortunately, you studied history, and you know that every time inflation runs hot, the best place to hide is gold. And now the question is: what is the best way to profit from a gold bull market?
The first way is the most logical. If you think gold prices will rise, you buy gold bullion. Purchasing physical gold has many advantages. First of all, you will have direct exposure to a rising gold price, as your bullion will automatically appreciate. If you store your bullion yourself, you will have no maintenance costs and instant access to your funds in case of an emergency. Additionally, you will enjoy privacy on your wealth as no government can know how much bullion you own. And it's safe to say that gold has stood the test of time as it has been used as a store of wealth for millennia and central banks around the world hold it.
And it's also an excellent long-term investment as it would have outperformed the sp 500 in most time frames, as you can see from this chart.
Now, the downside of holding gold bullion is that if you store it yourself, you might want to pay for insurance to avoid a complete loss of capital in case of a robbery. And if you opt for vault storage, it comes with annual fees that may make it unsuitable for long-term investing as the fees may eat up your overall gains. Even worse would be buying gold ETFs as in most cases you can't redeem physical gold and they have high annual expenses.
In conclusion, buying gold bullion is a good strategy when you want to hold it long-term as a store of wealth; however, it may not be the best investment vehicle for investors with a lot of capital or investors looking for leveraged gains.
For investors looking for leveraged gains, buying gold miners might be a good option. In every past gold bull market, miners have vastly outperformed gold. However, buying gold mining stocks comes with risks and has not performed well in the long term. Gold mining companies face many difficulties as it's a capital-intensive activity that is often performed in countries with major political risks. A single permit rejection may result in millions in losses for a company that bought and financed a property that can no longer operate.
Additionally, a gold mining company must always deploy new capital to find new deposits as its reserves are annually depleted by mining. On the bright side, most mining companies pay dividends, so you can be exposed to rising gold prices while getting a paycheck every quarter.
An example can be the Russian miner Polymetal, which currently yields 7.48% annually and has great assets and development pipelines.
Additionally, there are plenty of ways to speculate in the mining sector as investors can buy explorers, which are companies that are looking for gold deposits. Or developers, which are companies that have gold in the ground and are developing a mine, or producers, which are companies that have operating mines that are producing gold.
For investors with knowledge and risk tolerance, buying gold miners might be a great way to participate in the next gold bull market.
Finally, my favorite way to profit from a gold bull market is by buying gold royalty and streaming companies. These companies have a superior business model. Royalty and streaming companies buy royalties or streaming agreements from mining companies that give them the right to a percentage of the revenue generated by a mine or the right to buy a percentage of the mined ounces at a fixed cost for the life of the mine.
This business model allows royalty and streaming companies to enjoy high-profit margins of more than 80%, with zero exposure to mining costs while enjoying leverage to gold prices.
Additionally, royalty companies enjoy organic growth as further exploration and discoveries made by the mining companies in their land packages gives them additional value at no extra costs.
And the market performance of royalty companies proves the business model's superiority. If you invested in the Franco Nevada IPO in 2007, you would have enjoyed a compounded annual growth of almost 20% and a current dividend yield on cost of 7.8%, assuming you reinvested the dividends. You would have outperformed the market, bonds, and most other asset classes with minimal risk.
And I would like to play you a video clip from the billionaire Rick rule, who is one of the best natural resource investors out there.
So, in conclusion, if you feel like gold prices are going to rise in the future, you may want to consider buying bullion, mining stocks, or gold royalty companies. Let me know what you think in the comments, and I will see you in the next video.