Wary of Mining Companies? A Lower-Risk Way to Get in on the Gold and Silver Surge

Frenco-Nevada (TSX:FNV) stock might be a wiser way to play the run in gold prices this year.

Key Points
  • Gold has topped US$4,000/oz this year on central‑bank buying and macro worries; I don’t see a bubble yet but expect short‑to‑medium‑term pullbacks toward US$3,800–4,000.
  • I prefer lower‑beta exposure to the rally—Franco‑Nevada (TSX:FNV) offers a steadier way to play precious metals (streaming model, diversified cash flows, dividend) versus volatile gold miners.

The gold surge has been the talk of the town this year, with gold prices rising above the US$4,000 per-ounce level for the first time.

And while last week saw quite the shocking pullback, I do think that staying the course and not overreacting either way is a wise move, especially since many of the same dynamics driving higher gold are still in play (think central bank buying, growing macro concerns, tariff uncertainties, recession fears, and the anticipation of lower interest rates in the U.S.). While there has been a rise in speculative activity, I wouldn’t yet say that gold prices are in a bubble yet.

Although investors should certainly brace for a correction below the US$3,800–$4,000 over the short to medium term. Either way, many big banks have a target on gold to hit US$4,900 or even US$5,000 at some point in 2026.

That’s some serious upside, which, I think, might not be smooth, especially after the latest dip that saw the gold miners take an even larger hit to the chin. Indeed, it’s quite a shock to witness some gold mining stocks tank close to 10% in a single session of trade.

four people hold happy emoji masks

Source: Getty Images

Gold’s ride could get choppy, but don’t be startled out of the trade yet!

That really does speak to the leveraged nature of the gold miners. And with so many ways to bet on physical bullion, a strong case could be made that it’s just a bit too risky to go down the mining route when it comes to one’s gold exposure. Indeed, the gold miners have been shining brighter in the past year amid gold’s run-up. However, if gold prices move lower (and many folks learned this the hard way last week), the gold miners could take a double hit to the chin.

Indeed, operating leverage cuts both ways, and for an investor looking for less volatility and hedging benefits, I’d argue that the gold miners might not be the best way to play the bull market in gold, which may or may not turn at any time. Unless you’re a pound-the-table bull on gold, I’d argue it’s wiser to play it safe with the investments that have lower betas and less dependance on higher prices.

Franco-Nevada stock: Streaming your way to a better risk/reward in gold?

A common way to bet on gold is to punch your ticket to the likes of a physical bullion ETF. However, another, more underrated play, in my opinion, is the streamers. Frenco-Nevada (TSX: FNV) was definitely not spared as the gold and silver trade rolled over last week. The stock sits down close to 14% from its all-time high. However, I still think the streamer is a fantastic way to bet on precious metals with less correlation to the broad market.

At the time of this writing, shares have a 0.59 beta, making it a far less choppy ride than the likes of your average gold miner, which has a beta closer to 1. Either way, I also like the risk/reward trade-off of the streaming business, given its greater diversification and lower-risk financing, paving the way for stabler cash flow streams.

With a fairly low cost per ounce, Franco also stands to gain a lot more when gold prices rise compared to physical bullion. Combined with a well-covered dividend and potential for further dividend growth, I think it’s clear that names like FNV are worth more attention for investors seeking a smarter, less choppy way to play the precious metals scene as things look to get a bit bumpier.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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