Categories: Precious Metals
Topics: Gold Stocks

See what gold stock billionaire John Paulson is betting on and how to profit alongside him

Editor’s Note: Gold is presently within striking distance of all-time highs. I think it’ll easily accomplish that and then start making its trek toward $3K-plus. In other words, it’s time to position in select gold equities now. I just released an in-depth video presentation on one particular small-cap gold stock that I believe offers multi-bagger potential in the very near term. It’s not often you see billionaires piling into small-cap gold stocks. But that’s precisely what’s happening here. A major catalyst is just around the corner so timing is key. You can check it out here. Let’s get it! —Gerardo 

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For months and years, gold has bored the most excited of gold bugs, not breaking down but failing to break out. That’s all changing… and the time is now to position yourself for what I believe will be a historic multi-year run in the gold price that catapults the depressed gold equities that have underperformed the gold price in the last several months.

When I allocate capital in the gold space, I prefer to do so through a small percentage of physical gold coupled with a healthy exposure to gold stocks. I make sure I’m allocating patient capital that can afford pullbacks, and I make sure I am crystal clear on what I’m willing to risk in exchange for the type of gains I want to achieve. 

There are several ways to pick gold stocks, and I want to outline three.

1. Top Gold Royalty Stocks
2. Top Gold Miner Stocks
3. Top Gold Explorer Stocks

Full disclosure, of the three, I tend to gravitate to early stage explorers but am fully aware that, with the leverage to a higher gold price and discoveries, comes a higher risk. 

Risk isn’t for everyone, which is why I’m excited to share a gold pick that will benefit from higher gold prices and provides significant metal exposure in jurisdictions around the world without the risk that explorers incur.

1.) Top Gold Royalty Stocks

Royalty stocks reduce the risk of mining stocks and typically outperform the gold price. 

A gold royalty is simply a contract that gives the owner (i.e. a gold royalty company) rights to a portion of the final product. This can be a percentage of revenue or actual gold production (called a “stream”). 

Gold royalty companies pay an upfront sum for royalty rights and use these contracts to finance mining companies in need of capital. Since royalties typically cover the life of a mine, gold royalty companies benefit from the exploration upside that may extend the life of the mine and increase the amount of revenue or gold they receive from the mine at no additional cost.

When I look at royalty companies, I want royalties in safe jurisdictions. I like gold but I also want exposure to other metals. And I like a portfolio of royalties that’s positioned to capture the biggest gains in the sweet spot of the commodity cycle. 

Any allocation of capital to any asset(s) requires risk. But of the three types I’m covering, the royalty stocks offer mitigated risk with the leverage to future upside in the gold price.

If you want to further your due diligence and dig into royalty stocks, there is no better place to start than Franco Nevada (TSX: FNV) (NYSE: FNV), which is the leading gold-focused royalty and streaming company with the largest and most diversified portfolio of cash-flow producing assets. Its business model provides investors with gold price and exploration optionality while limiting exposure to cost inflation.

2.) Top Gold Miner Stocks

The gold miners can be very profitable but riskier than the royalty stocks. On the upside, when a bull market, like the one we’re in, matures and the herd catches on, the gold miners tend to attract the first bid and capture the bulk of the initial leg higher. They tend to be more liquid on more established exchanges and, if managed properly, are able to buy accretive assets at attractive valuations early in the cycle.

That’s also the downside. The “if” part of ‘managed properly’ can be very tricky, and when it disappoints, it disappoints quickly. Missed on production guidance? Missed on costs per ounce? Missed on grade? Does the Union want more money? Country you’re in decides your permit is no longer valid? 

All of those concerns should be taken into consideration when allocating capital to the gold miners. With that being said, a properly vetted miner in a stable jurisdiction with successful management can deliver very healthy profits in these types of markets. 

If you’re looking to further your due diligence on gold miners, Barrick Gold Corporation (NYSE: GOLD) (TSX: ABX) is a great place to start.

3.) Top Gold Explorer Stocks

Explorers are by far my favorite way to gain leverage in a rising gold price environment despite the fact that most explorers don’t actually have any gold; hence, the name explorers.

It’s true that explorers are the highest risk way of amplifying your gains in a gold bull market but they can also provide life changing gains with a lot of hard work and some luck.

Discoveries are becoming harder and harder to make, permit, and build. Which is why a company worth $2 million that makes a significant discovery can surge 10X, 20X, and even 1,000X with the right set of circumstances.

The trick, and it is tricky, is to mitigate the risk with the explorers. How to do that?

Never ever bet the farm on one company. You’ll likely walk away jaded and on the wrong end of the risk/reward proposition. Here’s how I play it.

Build a portfolio of 5 to 10 explorers at different stages of their exploration. A small, sub-$10 million explorer in a stable jurisdiction with a management team and clear strategy can provide explosive gains when mother nature cooperates. 

I tend to keep at least 25% of my gold stock exposure in this category.

Next up, find a company or two that has already made a discovery but has the potential to quickly add to the scale and quality of that discovery.

Last but not least, look for companies that are more advanced and have economic studies attached to their valuation and discovery but with the potential to grow the asset and improve the economics, which can position it to be bought out at a premium.

That’s the least risky way to gain exposure to outperforming gold stocks with the least amount of risk amongst the explorers. 

At the end of this gold bull cycle, each of these approaches – and you can mix and match – will prove profitable.

If you haven’t already done so, get positioned now for the next leg up. 

You can start by checking out my brand new video presentation on an under-the-radar small-cap gold stock with huge near-term potential and the backing of a well-known billionaire investor. 

Let’s get it!

Gerardo Del Real
Editor, Daily Profit Cycle