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Precious metals, which include gold, silver, platinum, and palladium, are primarily used by investors to hedge against inflation because these rare metals hold economic value. While there are several options on the market for those looking to gain exposure to precious metals, the top choices are those with the largest scale and lowest costs:

Precious Metals Stock

Enterprise Value

Precious Metals

Barrick Gold (GOLD 1.31%)

$27.2 billion

Gold

Goldcorp (GG)

$14.7 billion

Gold & Silver

Franco-Nevada (FNV -0.61%)

$11.1 billion

Precious Metal Royalties and Streaming

Silver Wheaton (WPM -0.63%)

$10.6 billion

Silver & Gold Streaming

Stillwater Mining (SWC)

$1.3 billion

Platinum Metals Group

Source: Barrick Gold, Franco Nevada, Goldcorp, Silver Wheaton, Stillwater Mining.

Digging into these precious metal stocks

Barrick Gold is currently the largest gold mining company in the world with production averaging more than 5 million ounces annually from a 91.1 million ounce resource base. That scale gives the company critical cost advantages, which is why it holds the title of the lowest cost senior gold producer. Because of its low costs, Barrick Gold can generate free cash flow as long as gold is above $1,000 an ounce. It is Barrick Gold's combination of scale and cost advantages that make it the quintessential gold stock.

Goldcorp is a significant producer of both gold and silver, producing 3.5 million ounces of gold last year to go along with 40.4 million ounces of silver. That said, the company's aim is not necessarily to be the largest producer but to grow its net asset value. Goldcorp plans to achieve that goal by using its scale to keep its costs down while also investing in projects focused on creating value over just driving growth. That drive to grow its value should serve long-term investors well even if the prices of gold and silver do not take off.

Franco-Nevada is a different kind of precious metal company because it does not directly own any mines, instead collecting royalties and streams from other miners. What this means is it earns money on a small percentage of the production of other miners in exchange for supplying them with capital. Currently, Franco-Nevada collects income from 340 different assets around the world, including from mines owned by both Barrick Gold and Goldcorp. Overall, 72% of its revenue comes from gold, 16% from silver, 6% from platinum group metals, 5% from oil and gas, and 1% from other commodities giving its investors diversity across all precious metals without some of the risks associated with owning and operating mines.

Silver Wheaton shares several similarities with Franco-Nevada, including the fact that it too doesn't own any mines. Where the two differ is that Silver Wheaton only owns gold and silver streams, so it is not quite as diversified as Franco-Nevada. That said, its portfolio of 22 operating mines provides it with high margin production thanks to streaming contracts that lock in low costs. Currently, it has the right to acquire silver and gold for just $4.25 and $404 an ounce, respectively, through 2020 enabling it to earn 60%+ margins at current prices. Meanwhile, those margins would rise sharply if silver and gold prices increase, which gives investors ample upside while limiting their downside.

Finally, Stillwater Mining offers investors a pure play on platinum and palladium, with it being the only U.S. miner of platinum group metals and the largest producer outside South Africa and the Russian Federation. Further, it is the leading low-cost producer of platinum, which along with its world-class assets and strong balance sheet enable it to weather the volatility of precious metal prices. Stillwater Mining's focus on platinum is noteworthy because while that commodity typically follows the price of gold, it often trades at a premium because of its rarity, which in a sense makes it a leveraged bet on precious metals.

Investor takeaway

Investors have a myriad of options when it comes to adding precious metal exposure to their portfolio to manage inflation. However, because prices can be volatile, the top investment options are the lowest cost producers, which include the largest miners as well as top streaming and royalty companies. These stocks not only give investors the upside they are seeking to rising prices but also limit their downside should precious metal prices lose their luster in the future.