As predicted, yesterday the U.S. Federal Reserve increased a key interest rate by a quarter of a point to between 0.50% and 0.75%, up from 0.25% to 0.5%. The Fed also forecasted three more rate hikes in 2017, one more than previously anticipated. Gold plummeted on the markets to $1,131.20 per ounce from yesterday's close of $1,142.60.
In two days, gold lost 2.3% or $26.3 per ounce on the markets:
Source: Kitco.com
On the London Bullion Market, gold is still declining. Today the commodity closed at $1,132.45 per troy ounce, down -2.1% or $29.8 per troy ounce since yesterday's close of $1,162.25 per troy ounce. This marked the lowest price over the last 10 months.
Source: Kitco.com
On the Comex, gold futures are down $31.85 or 2.74% from yesterday's close of $1,163.70 per ounce of gold. At the moment, the futures are trading at $1,131.85, 4.4% lower than the average price of $1,183.69 calculated over the last month. The average price ranges between a high of $1,229.30 per ounce and a low of $1,131.00 per ounce, with a difference of $98.30 per ounce of gold.
But that is not all. According to the Wall Street Journal, Fed officials are looking “to raise rates next year by another 0.75 percentage points, likely in three quarter-point moves,” creating further pressure on gold. The price of gold will continue to decline on the markets, thereby affecting gold stocks.
During a period characterized by declining prices for the precious metal, many investors have changed their gold investing strategies by switching to the subsector of gold and silver royalty and streaming companies. These companies are considered to be a good shield to the risks of investing in the gold industry.
Investors still want to expose their portfolio to gold, predicting that a surge in the price of the precious metal will occur some time between December and January due to two seasonal drivers: the Christmas holidays and wedding season in India.
One of these gold and silver royalty and streaming companies is Royal Gold Inc. (RGLD, Financial)(TSX:RGL, Financial). Royal Gold manages precious metal royalties for more than 200 properties located on six continents.
Royal Gold's business portfolio comprises interest stakes for 36 mines that produce precious metals and 21 projects the company is advancing.
Almost all of the producing mines and projects the company is developing are located in North America, which is known as a friendly mining country. As a matter of fact, a majority of the company’s revenues came from geopolitically stable countries in fiscal 2016, according to the company’s website.
More than three-quarters of revenue the company reported for the year came from the following mines: Mount Milligan (British Columbia, Canada), Andacollo (Chile), Pueblo Viejo (Dominican Republic), Wassa and Prestea (Ghana), Peñasquito (Mexico), Holt (Ontario, Canada) and Cortez (Nevada, U.S.).
Royal Gold has a total liquidity of approximately $650 million, of which $133.04 million is cash on hand and securities that can be readily converted into cash. The company has plenty of cash to further increase its portfolio along with its producing assets after purchasing supplementary royalty interests at Cortez for a total consideration of $70 million.
Total debt amounted to $674.03 million as of the most recent quarter.
Yesterday, Royal Gold Inc. closed at $66.49, down $2.80 (or -4.04%) from the previous close, with 870,321 shares traded on the Nasdaq.
The company has a market capitalization of $4.34 billion and the stock gained 82% year to date. It is trading 1.93 times its book value and 18.28 times its Ebitda.
Royal Gold has 65.32 million shares outstanding, of which 0.80% is held by insiders and 73.50% is held by institutions. The number of shares that can be traded is approximately 64.75 million.
First Eagle Investment (Trades, Portfolio) reduced its position in Royal Gold by 22.62% during the third quarter.
Among the top institutional investors, the Vanguard Group Inc. holds 5,266,957 shares, representing 8.06% of the company’s total shares outstanding. This is a total value of $407,820,480, as reported at the end of the third quarter.
Disclosure: I have no positions in any security mentioned in this article.
Start a free 7-day trial of Premium Membership to GuruFocus.
