JPMorgan Chase‘s (JPM +0.34%) second-quarter earnings update was notable for a warning from CEO Jamie Dimon. He listed a series of risks, likening them to tectonic plates and highlighting the potential for their collision to cause an earthquake. It was less of a prediction and more of a warning to investors that risk is elevated right now, at least partly because the stock market is trading near all-time highs.
That’s the backdrop within which investors need to consider JPMorgan Chase’s prediction that gold will rise to more than $5,000 an ounce by the fourth quarter of 2026. And that it could move even higher thereafter, according to the giant bank’s outlook. Given Dimon’s concerns, this is not an idle prediction. Here’s how you can use that prediction to hedge your own portfolio.
Image source: JPMorgan Chase & Co.
The obvious ways to buy gold
The easiest way to buy gold is to go to a jewelry store, but you’ll pay a massive markup. Jewelry isn’t a great investment. You could also go to a coin store and buy gold bullion. You’ll still have to deal with a material markup, but the bigger problem is that an ounce of gold will always be an ounce of gold. There’s no opportunity for growth. (You’ll also have to store the bullion you buy.)
This is why many investors prefer to buy gold mining stocks. These companies build and operate large mines, selling the gold and other metals extracted to generate revenue. Gold miners are actually leveraged to rising gold prices because their costs are generally fairly constant. Once gold is above their all-in costs, profits rise quickly. There are some problems, too. That gold miners are leveraged to falling gold prices, just as they are to rising prices, is a big one. But there’s also the risk of operating a small portfolio of mines. Mining is hard and expensive.
Today’s Change
(0.34%) $1.22
Current Price
$357.52
Key Data Points
Market Cap
Day’s Range
$353.33 – $358.85
52wk Range
$279.10 – $363.00
Volume
4.6M
Avg Vol
9.2M
Dividend Yield
1.68%
A better way to invest in gold
A more attractive way to own gold is to invest in a streaming and royalty company such as Franco-Nevada (FNV +3.28%), Royal Gold (RGLD +5.42%), or Wheaton Precious Metals (WPM +7.10%). These companies provide capital to miners in exchange for the right to buy gold at a reduced price in the future. Generally, the price is set as a percentage of the current spot price, meaning the companies are effectively guaranteeing themselves a profit.
Today’s Change
(5.42%) $11.81
Current Price
$229.92
Key Data Points
Market Cap
Day’s Range
$227.34 – $230.81
52wk Range
$164.13 – $306.25
Volume
849.2K
Avg Vol
721.5K
Gross Margin
66.77%
Dividend Yield
0.82%
On top of that, Franco-Nevada, Royal Gold, and Wheaton have more diverse portfolios than most miners. They have agreements with different miners in different regions of the world. Franco-Nevada, for example, has investments in 446 assets, with 121 of them actively producing revenues for the company. You are unlikely to find that level of diversification with a miner.
Today’s Change
(3.28%) $7.57
Current Price
$238.65
Key Data Points
Market Cap
Day’s Range
$235.50 – $245.79
52wk Range
$165.59 – $285.67
Volume
1.4M
Avg Vol
854.3K
Gross Margin
76.56%
Dividend Yield
0.69%
And all three of these streaming and royalty stocks have solid dividend histories. Royal Gold has increased its dividend for 25 consecutive years. Franco-Nevada’s streak is up to 19 years. Wheaton’s dividend is variable, which would actually leverage investors to rising gold prices.
Don’t ignore Jamie Dimon or JPMorgan
If you mix Jamie Dimon’s warnings with JPMorgan’s gold prediction, you might find you end up buying a streaming and royalty company as a hedge against market risk. But you could easily justify buying for diversification purposes, too. When it comes to adding gold to your investment portfolio, companies like Franco-Nevada, Royal Gold, and Wheaton Precious Metals have a lot to offer.
Leave a comment