Over the last several months, precious metals have been slumping. Many have claimed that the only reason why precious metals increased was due to Brexit and global uncertainty; however, I believe that gold will continue to rise over the next decade.
Royal Gold (NASDAQ:RGLD) is poised to take advantage of this increase in the cost of precious metals, for several reasons; first, however, I would like to explain why I believe precious metals will drastically increase in value over the next decade, and then I would like to explain why Royal Gold is a good choice as opposed to competitors such as Barrick Gold (NYSE:ABX) or Goldcorp (NYSE:GG).
Why Gold Will Rise
Put shortly, gold will rise over the next decade due to several reasons:
- Increasing job uncertainty, which will lead to economic instability in developed countries.
- Emerging markets in China, India, Brazil, and Southeast Asia will impact the economies of developed countries.
- Brexit, the EU losing power all throughout Europe, and the migrant crises.
In short, the reasons why gold will rise are quite simple. We live in a time of unprecedented fiat currencies, economic instability, and geopolitical changes. This is a simple fact.
Just since 2008, the U.S. has experienced a huge surge in money production: in just the last decade alone, we created 300% more paper money than in the past century. This has been extremely destabilizing to our economy, and has created a fiat currency bubble.
Fiat Currency Bubble
All throughout the gold investment circles, there has been talk of the impending monetary bubble. Countries such as China and the U.S., as well as the European Central Bank, have been printing money at record highs to afford large amounts of purchases.
This is all well and good, in the short run, but when our currencies reach a certain critical point, there will be an economic collapse. When our currencies become so devalued that we can't import 85% of the goods that we rely on, expect precious metals prices to skyrocket.
At the rate that the Federal Reserve is printing money, we can expect our imports to go up in cost. In fact, just recently the cost of our technology imports have gone up 10%. Imagine the economic consequences of our food, clothing, and shelter going up by 10% per year.
Emerging Markets Create Job Uncertainty
According to Bloomberg, there are a great number of emerging job markets that will continue to grow over the next decade:
- Brazil's GDP has increased 22.3% over the past 5 years
- Indonesia's GDP has increased by 31.3% over the past 5 years
- Thailand's GDP has increased by 25.9% over the past 5 years
- China's GDP has increased by 45.9% over the past 5 years
As more and more countries begin to become more and more developed, jobs that were once common and economically feasible all throughout the U.S. will begin to be outsourced. This, in conjunction with technological advancements displacing jobs, will lead to a large amount of global uncertainty.
And, as anyone investing in precious metals knows, global uncertainty is a good thing for gold. Put simply, when investors aren't sure which stocks and currencies to invest in, they rely on the tried and true currency that's withstood the past millenia: gold.
Turmoil in Europe
The European Union that once had a large amount of control over Europe is no more. After the U.K. left the EU, multiple countries have either threatened to leave or followed suit. This chain of events, now referred to as Brexit, was sparked by a series of migrant invasions and economic troubles facing countries such as Germany.
"Maybe this will be the beginning of a trend? Flat taxes, cutting foreign aid, a referendum on Europe, grammar schools. Who knows?" -Nigel Farage
Nigel Farage, current leader of the U.K. Independence Party, has repeatedly stated that he wants to break up the EU. He believes that it's bad for a number of reasons, but regardless, such a major political player in the world's arena attempting to break up the Eurozone will have drastic consequences on the stability of countries.
Again, this stability is a gold mine (no pun intended) for precious metals investors. Any sort of instability, whether it be political, geographical, or especially economical, typically leads to a surge in the prices of gold, silver, platinum, and other precious metals that have "inherent" worth.
Why Royal Gold and Not Barrick?
Although I'm a fan of Barrick, and I believe that it's a solid investment, I think that Royal Gold is a better option. Here's why:
- It is a streamlining company, which allows it to suffer economic downturns far more easily
- It has raised its dividend for the past 15 years straight, despite decreasing gold prices
- Royal Gold has over $3 billion in assets, and only $780 million in liabilities
As I said before, Barrick is still a phenomenal investment, but there're a few key things that Royal Gold has that Barrick doesn't. First and foremost, Barrick has no dividend. This can either be a good thing or a bad thing depending on your investment style.
Some would say that dividends are bad, because that's money that isn't being re-invested into a company. Others, such as myself, would say that dividends are good, because they provide a company with a constant motivation to improve.
Barrick also has to deal with more logistics; it has to find good sites, mine them, and deal with transportation and distribution. Royal Gold simply invests in a mine and lets a mining company deal with the logistics, in return for a discounted rate (usually 30%) on the gold.
Royal Gold's Financials
Royal Gold has a solid set of financials; some might even say that they're pristine. Its dividend, coming in at 1.25%, hasn't been decreased in 15 straight years; that's pretty impressive.
In addition to this, it has over 4x as many assets as it does liabilities, which is great. Finally, it is one of the largest precious metals companies out there, which gives it a ton of monopolization potential.
All in all, Royal Gold is a phenomenal investment that every single precious metals investor should own. Expect gold prices to shoot through the roof over the next 2-5 years, particularly as we come closer to election day in the U.S. (November 8th).
The company's dividend is solid, it is headed in the right direction, its financials are solid, and the gold market will explode, providing it with a huge tailwind to ride off of. In addition to this, there has been a recent dip in precious metals prices, which equates to discounted stock prices. Now is the time to buy.
Disclosure: I am/we are long RGLD.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: There's no "RGLD" primary ticker option.