Gold is seen by some as a safe-haven investment in times of economic and political uncertainty. For those looking to buy it, there are multiple ways to own gold, from simply buying bullion (gold coins or bars) to investing in precious metal mining companies.
If you are thinking about investing in gold now (or anytime), there's also a unique niche in the gold space that is worth exploring further. If it's to your liking, it's also why Franco-Nevada (FNV -0.45%) could be worth a $10,000 investment right now.
What does gold do?
Gold is a metal -- it doesn't really do anything. That's kind of a joke, but it's also true. If you buy an ounce of gold (for instance, a single 1-ounce gold American Eagle coin), it will always and only ever be 1 ounce of gold. It can't grow into more than that, so the price change in gold is the only thing that will impact that coin's value.
And, while you own that gold, you'll need to put it somewhere safe. That's not too big a deal for one coin, but if you own a lot of gold coins, it becomes a bit more problematic. There are also transaction fees to consider, with gold coins being a rather expensive way to buy the metal, given the markups that coin dealers tend to impose so they can make a living.
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All in, gold coins aren't always the best way to own gold unless you truly believe that the world economic order is going to collapse. If that happens, you may need to spend those coins. If that outcome doesn't come to pass, then gold is really more of a hedge against bad economic outcomes.
You could invest in gold in some other way. For example, you can buy exchange-traded funds (ETFs) that directly own gold. That's fine, but high costs and the "gold is only gold" issue are still at play.
A better option for many investors is buying stock in gold miners. Precious metals miners normally mine for more than just gold, but the key here is really the opportunity for a business to grow over time. The financial performance of precious metals miners rises and falls with the price of the metals they produce, so gold prices are still a key factor. However, over time, investors can benefit from new mines, upgrades of old mines, and acquisitions.
But there's an even better option in streaming and royalty companies like Franco-Nevada.
What does Franco-Nevada do?
One of the big problems with miners is that the process of running a mine is expensive. So, when precious metals prices are low, miners often lose money.
Franco-Nevada sidesteps that risk because it provides miners with cash up front (which is used to build mines and expand existing assets, among other things) for the right to buy gold and other metals at advantaged prices in the future. These are called streams and royalties. Essentially, Franco-Nevada is locking in good prices that pretty much ensure it will make a profit when it goes to sell the precious metals it buys.
The proof of the sustainability of Franco-Nevada's business model comes from its dividend. The Canadian company has increased its dividend annually for 18 consecutive years, which is roughly how long the business has existed.
If you are a dividend investor looking for a way to invest in gold, Franco-Nevada is a solid option. That said, the dividend yield is a tiny 0.9%. You aren't buying for the yield -- you are buying for the diversification benefit gold may offer your portfolio.
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Diversification, meanwhile, is where Franco-Nevada shines. It invests in gold and silver streams, which make up the lion's share of its assets. But it also invests in energy and other metals.
Gold prices can be volatile, so having a little diversification with other so-called "hard assets" is likely to be a good idea for most investors. In the end, you are likely looking for a hedge to protect against adversity, not going all-in with a 100% bet on gold. Franco-Nevada offers that hedge with broader commodity exposure than its closest peers. Note that most investors should probably keep 10% or even less of their portfolio in gold, anyway.
What does $10,000 get you with Franco-Nevada?
Franco-Nevada's share price is around $170 today, so $10,000 will net you around 58 shares. But that's not really what you are getting when you buy the stock. What you are getting is peace of mind, since you'll be adding a hard asset to your portfolio mix that Wall Street has long seen as a safe-haven investment. So long as you don't go overboard, a small investment in Franco-Nevada can go a long way in helping you sleep at night when markets get volatile.
