We view gold, which historically has performed well during inflation and deflation alike, as an essential hedge, explains growth stock expert Stephen Leeb, editor of The Complete Investor.

Going back nearly two centuries, whenever real total returns for stocks were negative over a three-year or longer stretch, gold produced a positive real total return — an unmatched record as a hedge.

Turning to Franco-Nevada (FNV), thanks to its unique business model, since its debut as a public company a decade ago it has outperformed both gold and the S&P 500.

Franco-Nevada acts as a financier for start-up resource companies and also provides additional capital for ongoing operations. About 85% of the company’s operations are in the gold and precious metals area, and more than 10% are in oil and gas companies.

In exchange for investing cash in start-ups, Franco-Nevada generally receives future royalties, in the form of a percentage of top-line revenues. Another source of revenue comes from streaming, where Franco-Nevada pays a miner a fixed price for a secondary metal.

The company’s business model results in high leverage to rising commodity prices with almost none of the risks of higher capital costs associated with mining. And the model works across a very diverse set of assets: The company currently has stakes in more than 375 assets spread around the globe.

Of great importance, more than 80% are in the Americas and virtually all are in politically stable countries. The company’s oil and gas assets are focused in the extremely fertile Permian and Scoop/Stack basins in Texas and Oklahoma.

Since the company’s IPO in 2008, most operating measures such as revenues, EBITA, and gross profits have grown between five-and seven-fold. Earnings per share have grown more slowly, since some of the funding for projects has come from the issuance of additional shares.

Since inception the company has generated about $3.7 billion in EBITDA, the broadest measure of earnings. Going forward, current projects promise an additional $18 billion of EBITDA plus returns on an additional 230 gold, silver and other metal projects and nearly 60 oil and gas projects, all in the start-up phase.

Add in any additional investments the company will make, and you have a rare combination of the potential for explosive growth with limited downside risk.

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