Gold entered a bull market around mid-2023, with prices crossing the $2,000 per ounce threshold and enjoying strong momentum ever since. With gold pushing past a record $4,000 per ounce last week, the yellow metal has now risen around 50% in a year. For all the excitement around artificial intelligence (AI), this is more than triple the return of the tech-heavy Nasdaq Composite, which has returned around 15% year to date.
Image source: Getty Images.
Yet, some experts see the rally continuing, with Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, saying that $5,000 per ounce gold "is not ruled out." Most forecasts predict gold hitting $5,000 as geopolitical tensions and falling interest rates make gold more attractive to investors, though Goldman Sachs (GS -0.86%) is more conservative, forecasting it hitting $4,900 per ounce by December 2026.
Wheaton Precious Metals (WPM 2.59%) CEO Randy Smallwood might be gold's biggest bull. Last week, he told Bloomberg Television that he's "confident that we will see gold over $5,000 within the next year." He went on to forecast gold reaching $10,000 per ounce by 2030, saying it "wouldn't surprise me at all."
Wheaton Precious Metals, which provides financing to mining companies in return for the rights to buy their output at a discount, has already benefited enormously from the gold boom. Its earnings surged by 138% year over year last quarter, while revenue grew by 68%. Its shares are up 93% year to date, approximately double gold's return. As you can see below, the stock has handily outpaced silver and gold's gains over not just the last year but over three-year, five-year, and 10-year intervals, too.
Image source: Company presentation. ETF = exchange-traded fund.
To understand this dramatic outperformance, consider the business model's advantages. Precious metals streaming allows Wheaton Precious Metals to collect output from mines at a massive discount to the spot price in return for an up-front payment.
For instance, in 2021, Wheaton Precious Metals acquired a gold stream from a mine in British Columbia, Canada, called the Blackwater Gold Project. In return for payments totaling $441 million, Wheaton Precious Metals is entitled to buy 8% of payable gold production, up to 279,908 ounces, at just 35% of gold's spot price, after which it's entitled to 4% of gold production at that discounted rate.
This year, the Blackwater Gold Project began producing with 4,000 ounces of gold mined. It's expected to produce an average of 28,000 gold ounces in attributable production for the next 10 years, meaning that Wheaton Precious Metals could receive 28,000 ounces a year at its heavily discounted rate. That would allow the company to make a $290 million profit from the first decade of mining operations, even if gold prices stay flat. And that's before factoring in the company's right to buy an expected 670,000 ounces of silver a year at a discount of up to 82% for 10 years.
This example shows how lucrative streaming deals can be. And Wheaton Precious Metals has over 30 streaming agreements in place, with an average mine life of 27 years. For context, Newmont (NEM 4.29%), the largest gold miner in the world, touts an average mine life of "ten years or more."
The company's ability to buy millions of ounces of precious metals at steep discounts explains its dramatic outperformance of precious metals over time. Of course, Wall Street knows this, with analysts forecasting nearly 80% growth next quarter. Given the high expectations, is Wheaton Precious Metals still a buy?
Well-positioned for a multiyear gold boom
Today's rally is roughly two years old, but gold booms typically last around five to eight years on average, notching gains of hundreds of percent, as the U.K.-based precious metals firm Auronum has documented. While past performance does not guarantee future results, history shows that this gold rally could last for several more years.
In each of the last four quarters, analysts have underestimated Wheaton Precious Metals' revenue growth by as much as 60%. It's hard even for professionals to gauge the company's potential upside in a gold boom, since a rise of even a few percentage points in the gold price can move the needle dramatically for the stock. But with the Federal Reserve expected to cut interest rates twice more in 2025, even the analysts who chronically lowball this company are projecting robust growth next quarter.
And while Wheaton Precious Metals has a price-to-earnings ratio of 39, compared to the S&P 500's average of around 24, investors should keep in mind that the company grew earnings by 138% year over year last quarter. If sustained, that pace could easily allow it to grow into its valuation and then some. And unlike any precious metal, these shares pay a dividend, allowing investors to collect a 0.6% yield as the company cashes in on the ongoing gold rally.
For investors seeking to profit from and perhaps dramatically outperform the gold boom while collecting regular quarterly income, Wheaton Precious Metals is a buy.
