When market volatility hits, seasoned investors often turn towards the perceived safety of precious metals. That presents an opportunity for those investors to benefit from surging gold prices.
Here’s a look at some of the ways you can benefit from those surging gold prices without being exposed to significant risk.
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Opportunities are growing
Economic uncertainty leads to surging gold prices. It’s no coincidence, then, that gold prices are up an astonishing 26% year-to-date to over US$3,330 per ounce. This presents an opportunity for investors to consider because of those surging gold prices.
Two options for investors to consider right now are Wheaton Precious Metals (TSX: WPM) and Barrick Mining Corporation (TSX: ABX).
Both of these stocks can offer a different take on how to benefit from the current gold rally we’re seeing unfold.
Meet Barrick
Barrick is a traditional miner and one of the largest gold miners on the planet. The company has a well-diversified portfolio of 18 active mines on four continents.
Barrick also boasts a number of projects currently under exploration and development.
Traditional miners like Barrick earn profits by selling off the precious metals produced from their mines. The cost of mining is largely fixed, whereas the price at which those extracted metals sell is based on the market.
In other words, as gold prices rise, Barrick becomes more profitable. That’s a key reason why Barrick is a great option for investors looking to benefit from surging gold prices.
By extension, it’s also the reason why Barrick’s stock price has soared a whopping 32% this year. In fact, in the most recent quarter, Barrick posted an incredible 59% increase in net earnings when compared to the prior year.
The company also reported free cash flow of $375 million in the quarter. That stellar performance helped Barrick trim 5% of its net debt in the quarter.
Prospective investors looking at Barrick should also note that the company offers a quarterly dividend. As of the time of writing, the yield on that dividend works out to 1.9%.
Meet Wheaton
While Barrick provides the direct operational upside, Wheaton provides an alternative, lower-risk option for investors. Part of the reason for that is because Wheaton is a precious metals streamer.
Streamers like Wheaton do not own or operate precious metal mines. Instead, they provide upfront capital to traditional miners, who will then set up the mine and begin operations.
In exchange for that upfront capital, streamers are permitted to purchase an amount of the metals that are produced from the mine at discounted rates.
Let’s clarify that further – streamers purchase those metals at extremely discounted rates.
As mentioned above, the spot price for gold currently sits just over US$3,3300 per ounce. For silver, the market price is US$38 per ounce.
The price that streamers like Wheaton pay for an ounce of gold sits near US$450 per ounce. Turning to silver, that number is near US$4.00 per ounce.
In other words, Wheaton benefits from the market rally like Barrick, but has the bonus of considerably lower risk.
And like Barrick, Wheaton also pays out a quarterly dividend, although its dividend currently sits at a yield of 0.7%. That being said, prospective investors should note two key points about Wheaton’s dividend.
First, the dividend is based on the average operating cash flow from the prior four quarters. This means that investors can expect a bump if the current surge continues.
Second, the dividend is well supported, with a payout ratio of just 33% of cash flow. Again, this leaves room for growth.
Will you benefit from surging gold prices?
No stock is without risk. Both Wheaton and Barrick offer investors a unique opportunity to buy into the surging precious metals market.
In my opinion, a small position in one or both of these stocks would do well in any larger, well-diversified portfolio.
