By Zach Scheidt, The Daily Reckoning, 2024-07-08
This post Make Gold Your Personal ATM appeared first on Daily Reckoning.
If you've got any exposure to GOLD or other precious metals, congrats! The first half of 2024 has been an absolute thrill ride.
You may recall that GOLD closed the month above $2,000 an ounce for the first time late last year — a breakout that'd been a long time coming.
This breakthrough cleared the way for GOLD to soar to its next psychologically important milestone of $3,000 an ounce.
Given how much attention was bound to follow this important milestone for GOLD, I predicted it could even hit this next price target before the end of 2024.
Now that we've reached the halfway point of the year, let's check back in and see how the yellow metal is doing.
Gold's Ahead of Schedule
After a slow start, GOLD shot up in February to another all-time high around $2,450 in May. That's almost halfway to my target for the year in just three months!
Of course, no bull market moves in a straight line. GOLD experienced a healthy pullback following its blistering surge, finding support around the $2,300 level in June. It's holding above that through the first week of July.
This modest selloff has allowed GOLD to digest some of its earlier frothy gains while shaking out some of the more speculative investors.
So even after an impressive run, this looks like only the beginning of a much larger GOLD breakout that could extend into the second half of the year and beyond.
After all, many of the classic catalysts for higher GOLD prices like inflation, a weakening dollar, and election uncertainty are still in play. How should you capitalize on this bullish trend?
A Superior Way to Invest in Gold
Sure, you could always buy physical GOLD to prepare for the next breakout. And I certainly recommend owning some as part of any diversified portfolio.
But my specialty is income. Physical GOLD doesn't offer any yield, which is a problem for income investors.
Or you could buy shares of GOLD miners. They can be extremely lucrative. But mining is a risky, expensive business, and companies can fail for reasons that have nothing to do with the price of GOLD.
But another way to invest in surging metals prices is to buy a mining company that doesn't actually own any mines. I'm talking about streaming companies!
Streamers offer mining companies the money they need to start and build their businesses. In return, streamers ask to buy some of the mine's production at a reduced price.
In other words, streaming companies don't have to worry about exploration risks, equipment upkeep or environmental issues associated with owning a mine; they just collect checks.
What a Deal!
A streamer might give a small mining company $1 million to break ground on a new mine. In return, it could ask to buy 75% of the GOLD production for $500 per ounce.
The streaming company can then turn around and sell that GOLD for the going market price. So if GOLD is trading around $2,000 an ounce, it makes $1,500 from the sale.
A streamer doesn't own any mines. But it may have deals with many operating mines. The duration of the deals and the amount streaming companies pay for GOLD may vary, but the numbers aren't far off from the above example.
In fact, they can be even more favorable. At last count, one streamer I like bought GOLD from its partners at an average price of $439 per ounce and was able to sell it at an average price of $2,072 per ounce.
That's a $1,633 profit margin at recent prices!
And if GOLD continues to push higher, streamers' profits will only get more attractive from there. Most GOLD miners could only dream of that kind of margin! (For reference, the average miner spends over $1,300 an ounce just to get GOLD out of the ground).
Diversity Is Their Strength
Sure, mining companies will feel the squeeze if GOLD prices retreat somewhat. But prices would have to fall much further before good streaming companies start getting worried.
And unlike GOLD miners that are focused on just a handful of properties, streamers can partner with a wide range of mining companies operating all over the world.
Some of the mines might not even produce much GOLD. But it might produce large amounts of PALLADIUM or SILVER, for example, so streamers can provide true diversity in the precious metals space.
That's important because analysts who follow the sector believe that SILVER is on the cusp of a major bull market, driven by a perfect storm of supply and demand factors.
While a large amount of GOLD gets turned into jewelry, bars, coins and other investable assets, over 60% of the world's SILVER is used in industrial production. It's a key component in everything from electronic devices to solar power cells.
With the growth in those industries, companies are buying up all the SILVER they can. But for four consecutive years, SILVER demand has outstripped supply, with the deficit expected to grow to a staggering 250 million ounces in 2024.
So in terms of simple percentages, SILVER could be poised for an even bigger breakout than GOLD. And historically, streaming companies can deliver higher returns than precious metal indexes and ETFs.
Streamers Keep You Ahead of Inflation
So I recommend good streaming companies with solid books and that pay high dividends. In an inflationary environment, it's not enough to generate income for your current expenses. Because as the cost of living rises, you'll need more income to cover these same expenses.
That's why it is so important to invest in companies that grow their payouts over time, giving you extra income that can help offset the challenge of inflation.
Streaming companies can do that for you.
The post Make Gold Your Personal ATM appeared first on Daily Reckoning.
