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Should Investors Buy Barrick Gold Stock?

Will Ashworth

Gold bullion is up 3.6% year to date through June 11. Barrick Gold (NYSE:GOLD) stock  has risen  0.4% in 2019 including dividends.

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Source: Jeremy Vohwinkle via Flickr (Modified)

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It seems as though demand for gold is getting stronger, both because we’re heading into an election cycle with a president who’s very unpredictable and because the economic news isn’t nearly as strong as it once was, making a July interest rate cut a possibility.

“The economy is not tremendously strong, but it’s also not that bad,” said Chantelle Schieven, head of research at Murenbeeld & Co. “I just feel that a rate cut in July would send the wrong message.”

Last week, the weak employment numbers enabled  gold bullion to have its best five-day period in a long time. Furthermore, President Trump’s unpredictability has businesses confused about their best course of action.

“Right now companies can’t make any decisions because they don’t know what the government is going to do next,” Schieven said. “We are not forecasting a recession, but this indecision will send the U.S. economy into a stall.”

So, let’s assume that gold is the smart way to hedge against further difficulties in both the political and economic arenas; should an investor buy gold bullion or a proxy such as the SPDR Gold Trust (NYSEARCA:GLD) ETF or should he or she purchase the stock of a top-notch gold producer such as GOLD stock?


Personally, I’ve never been a fan of gold, so I’ve got no dog in this hunt. Nonetheless, here’s my two cents on the issue.

Gold Bullion

The great thing about gold bullion is that it’s a tangible asset. It enables investors to own something they can hold. But that’s not the reason most people buy gold. Most investors who buy gold or a gold equity like GOLD stock are doing so because they think that if all heck breaks loose, gold is one of the few assets that will hold its value.

My fellow InvestorPlace columnist, Josh Enomoto, recently recommended seven stocks to buy for the coming recession. Interestingly, although Josh suggested Barrick, he doesn’t own GOLD stock. He does, however, own gold bullion.

“The spot price for the monetary commodity spiked in late May, to no real surprise. The only shocking thing is that it took so long,” Josh wrote in a column published on June 11. “We’re mired in a deeply contentious political environment, both here and abroad. Furthermore, the dollar has weakened against a basket of international currencies, setting the stage for a stunning recovery.”

At this point in the economic cycle, I find it hard to believe that the price of gold is going to fall back below $1,000, where it traded before the recession.

Investors are looking for places to hide their money. Gold bullion seems like as good an option as bonds at this point.

GOLD Stock

Assuming that the price of gold is going to keep moving higher, the outlook of Barrick Gold stock should continue to improve.

Over the past decade, Barrick’s most successful years were 2010 and 2011.  Not coincidentally, that was when the price of the yellow metal hit its highest level since 1980. In 2010 and 2011, Barrick had operating margins of 46% and 51%, respectively, on annual revenue well above $10 billion; it hasn’t come close to that level of profitability since then. Not surprisingly, GOLD stock price hasn’t come close in recent years to its 2011 high around $51. 

The Bottom Line on GOLD Stock

If gold does well over the next 12-24 months, Barrick could benefit from the metal’s run.

However, history shows that GOLD stock price doesn’t always move in tandem with gold prices. For example, between 2007 and 2011, the price of gold surged around 125%, but  GOLD stock price only rose about 25%.

For this reason, if you think gold is going to go on a run, but don’t want to own the physical asset, you might be better served by buying an ETF that holds a basket of gold producers, not just Barrick Gold stock.

A rising tide lifts all boats.

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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