How to Invest in Gold Royalties

by Eric Bank ; Updated July 27, 2017
Gold bars.

A gold royalty company invests in gold mines in exchange for future payments or for bargain-priced gold that it can sell for sizable profits. If you want to receive a portion of the royalty income, you can buy the stock of the royalty company. These companies typically pay out about 20 percent of the royalties as dividends to stockholders. To invest knowledgeably, you need to research the royalty companies, understand how they make money and consider the risks.

Royalty Income

A typical gold royalty company will invest in 10 to 50 different mines at one time. The company pays the mine an upfront amount in exchange for either a percentage of sales or for the opportunity to buy gold from the mine at a deep discount -- an arrangement called a metal stream. These deals give the royalty company income that isn't affected by the costs that the gold mine experiences, reducing the risk of the investments. However, if the mine goes bankrupt or reduces production, the royalties will cease or decrease. Profits from metal stream deals may decline if the price of gold falls.

Research Before Buying

You can buy shares of gold royalty companies through a regular brokerage account. Morningstar, an advisory firm, listed 19 gold royalty stocks as of this article's publication date and offers investment advice on each. Prudent investors read the prospectus before buying stock in any company.

About the Author

Based in Chicago, Eric Bank has been writing business-related articles since 1985, and science articles since 2010. His articles have appeared in "PC Magazine" and on numerous websites. He holds a B.S. in biology and an M.B.A. from New York University. He also holds an M.S. in finance from DePaul University.

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