The market is near all-time highs. Global debt levels are near all-time highs. Interest rates are near all-time lows. These are very good reasons why investors might want to diversify into investments that have historically been viewed as safe havens, like precious metals.

There are different ways to do this, including buying a miner like Barrick Gold (GOLD -2.36%) or taking a bit of a different path and buying a streaming and royalty company like Royal Gold (RGLD 0.15%). Here's a rundown on why one is probably a better option than the other.

Start by choosing growth

Barrick and Royal Gold share one thing in common that owning physical gold or an exchange-traded fund that invests in bullion doesn't offer -- growth. Simply put, the only upside potential for gold coins or bars is an increase in the price of gold.

However, miners and streaming companies can invest in their businesses and expand. That's a key edge that makes them better long-term options for most investors looking for diversification via a gold or precious-metals investment. It's not a guarantee of success, of course, since there are risks that go along with capital-investment activity, but over time, the upside potential is probably worth the risk.

Person holding cash in a gold jewelry store.

Image source: Getty Images.

The interesting thing is that capital-investment risk is part of the symbiotic relationship between miners like Barrick and streamers like Royal Gold. Streaming, to simplify things, is when a company provides cash upfront to a miner for the right to buy gold (or other metals) at a future date and a reduced rate.

For example, in a recent streaming deal, Royal Gold paid ERO Gold Corporation $100 million, with the potential for an additional $10 million, in exchange for the right to buy 25% of the gold from the NX Gold Mine in Brazil at 20% of the spot price. After certain production targets are hit, that rate rises to 40% of the spot price. ERO Gold, meanwhile, will use the cash to invest in the continued development of the mine. 

ERO Gold wins because it gets access to growth capital without having to tap the capital markets, which would increase debt levels or, if stock was issued, dilute current shareholders. Royal Gold wins because it gets to lock in low prices for gold. And both win because their businesses expand.

However, for most investors, streamers will likely end up being the better way to add gold exposure to a portfolio. A look at Barrick and Royal Gold will help explain why.

Streamers have precious advantages

Barrick is one of the largest gold miners on the planet, with stakes in or complete ownership of 14 gold mines and three copper mines. Royal Gold has streaming and royalty deals with 41 producing properties. That gives Royal Gold a material edge on the diversification front, since it has more eggs spread across more baskets than Barrick.

But it doesn't stop there. Royal Gold also has investments in 19 development projects and 127 investments that are in earlier stages of development and exploration. That's a total of 187 properties.

Then investors need to consider costs. Building and operating mines is expensive, labor intensive, and risky. Barrick has to bear these burdens, which sometimes end up at higher levels than originally expected, but Royal Gold doesn't. Its cash investment is pre-set and known in advance.

As for operating costs, Royal Gold only has around 30 employees. Barrick has more than 20,000 employees and 23,000 contractors on its payroll. They operate under totally different cost structures and work intensities. And given the dangerous nature of mining, Royal Gold's risk profile is materially lower.

Yes, a mine accident will impact the amount of gold it can buy. However, the company doesn't have to deal with any of the other issues such a situation would create (like getting the mine back up and running and paying for any damage that was caused).

RGLD Operating Margin (Annual) Chart

RGLD Operating Margin (Annual) data by YCharts.

Royal Gold has more diversification, locked in low prices for gold, and low operating costs. That leads to wide margins that tend to be resilient in both good gold markets and bad. The chart above comparing the margins of Royal Gold and Barrick bears this fact out.

But take the above streaming example, in which Royal Gold's cost is set as a percentage of the spot price. That agreement locks in a generous profit margin. Barrick's costs tend to be stickier and take longer to adjust, so falling gold prices can lead to a material drop in margins.

On the flip side, rising gold prices can lead to larger margin improvements for Barrick, but most investors shouldn't be trying to time moves in gold prices. Thus, Royal Gold's model, which is more resilient through the commodity cycle, stands out as a better option.

This is why you want a streamer

Streaming and royalty companies like Royal Gold are a little outside the normal path for many investors. However, if you're looking for a way to add precious metals to your portfolio, it pays to dig in and get to know Royal Gold and its peers, including Franco-Nevada and Wheaton Precious Metals.

Summing things up, the streaming business model has material benefits over gold mining and investing directly in gold. Royal Gold, however, is the cheapest option of this trio, looking at price-to-book value and price to earnings. It also has a number of catalysts that should help boost performance, including new investments that are coming online.

All in all, Royal Gold looks like a better long-term option for investors than a miner like Barrick Gold.