Investing in Gold Royalties

Today’s issue is on ​Gold Royalties​. Think of it like music royalties, but for gold.

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It’s no secret that gold is having a bit of a moment right now.

In the past five years, gold’s price has climbed from less than $1,300/oz to more than $2,000/oz – for an annualized return just shy of 10% over that period.

Since January 2019, gold has generated returns ​​in line with the Dow Jones Index​​ – and with significantly lower volatility. Image: ​​APMEX​

Traditionally, there are two ways to get exposure to gold during a boom:

  1. Buy gold (either as physical bars or ​as part of a fund​). This offers direct price exposure, but limited upside opportunities.
  2. Or invest in mining companies. This allows you to participate in industry growth (like higher sale prices and new discoveries) but also introduces business risk.

But today, Gold Royalty Corp (​NYSE American: GROY​) is offering investors an innovative third option – gold royalties.

What are gold royalties?

In the past, we’ve explored the idea of royalty investments – especially in relation to ​music​.

The basic idea of a royalty is that you make a single, upfront payment in exchange for the income generated by a specific asset.

This claim is usually perpetual, meaning it lasts forever – kind of like a bond that never matures.

Gold royalties follow the same basic model. A royalty company (like Gold Royalty Corp) fronts money to a mining operator, who uses the cash to expand and develop a mine.

When that mine produces gold, a portion of the revenue generated is diverted to the royalty company as payment.

The percentage a royalty company earns varies by specific project, but ​​Gold Royalty Corp’s portfolio​​ is generally in the range of 1-3%.

At first glance, this might just seem like a roundabout way of investing in gold mines.

But for investors, there are significant advantages with the royalty route:

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Brian Flaherty

Brian Flaherty

Brian's interest in finance started from an early age, when he used money saved from working summer jobs to purchase his first mutual fund at 15. He went on to pursue the field in school, eventually graduating from the University of Virginia with a Bachelor's degree in Economics. After graduation, Brian put his expertise to work advising institutions and high-net-worth investors as a strategist at a wealth management firm. Recently, Brian transitioned to pursue a career as a financial writer, where he leverages his writing skills and his financial knowledge to help investors uncover the best opportunities and make intelligent use of their capital.

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