What happened
Shares in gold royalty company Sandstorm Gold Ltd (SAND 0.18%) rose 11.5% in March, according to data provided by S&P Global Market Intelligence. The move primarily comes down to an increase in the price of gold following the invasion of Ukraine. During uncertain times, investors typically flock to so-called "safe haven" assets, and gold is generally seen as one of them.
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Sandstorm is unusual because it's not actually a gold miner or an exchange-traded fund (ETF) holding gold assets. Instead, the company's business model involves buying a stream or royalty from miners. In doing so, Sandstorm diversifies the risk in its investments (by investing across numerous mines), so its mine-specific risk exposure is reduced. Its portfolio of 230 streaming and royalty assets currently has 29 different cash-flowing assets.
So you can think of Sandstorm as a relatively low-risk means of capturing some upside from the price of gold. As the price of gold rises, so will the value of its streaming and royalty income.
So what
Having spiked from around $1,900 an ounce to $2,050 an ounce in the first few weeks of the invasion, the price of gold has now dropped to about $1,930 an ounce. Sandstorm's share price shouldn't be seen as purely an instrument for tracking spot gold prices. Management still needs to be successful in its investments and generate healthy income streams for investors.
In addition, in uncertain times, investors look for security. Given the challenges created for the financial system by the sanctions on Russia and the possibility that investor sentiment will shift away from U.S. dollar assets as a safe store of wealth, it's understandable that investors are looking for alternative assets. Indeed, it will take a slight shift in portfolio allocation models worldwide to send gold assets higher over the long term.
So Sandstorm is likely to be attracting interest from investors looking for long-term assets in gold rather than merely a short-term play on the "risk-off" trade.
Now what
Investors need to keep an eye out for Sandstorm's asset updates and the evolution of its portfolio of streaming and royalty assets. Meanwhile, gold's attractiveness as a safe-haven asset will increase only if there's more uncertainty in the world -- something for investors to consider.
