The shares of Barrick Gold Corporation (NYSE: GOLD) , one of the largest gold producers in the world, have lost 24% of their value since mid-April although they still remain up by about 6% year-to-date. There are a couple of factors that have weighed on the stock recently. Firstly, gold prices have been on the decline over the last few months falling by around 10% from $2,050 per ounce in mid-March to levels of $1,825 at present, with prices also remaining marginally down year-to-date. The decline comes as the Federal Reserve hikes interest rates at a more aggressive pace to curb surging inflation. Higher rates have led to a stronger U.S. dollar and a recovery in yields of treasuries – both considered safe-haven assets – putting pressure on the price of non-yielding bullion. Barrick’s gold production over Q1 also fell 10% versus last year, on account of lower output at its Carlin and Cortez mines in Nevada, while the company’s profits have also come under some pressure due to supply chain issues and an increase in costs related to Covid-19.
However, we think that these developments could ultimately bode well for precious metals. Indicators point to a recession in the United States in the near term, with the yield curve, which is seen as a fairly reliable predictor of economic downturns, inverting. Consumer confidence in the U.S. is also falling, as high inflation puts pressure on household budgets. Geopolitical uncertainties have been growing following Russia’s ongoing invasion of Ukraine. Trefis believes that these factors are likely to support gold prices until global macroeconomic and geopolitical stability is attained. Considering that over 90% of Barrick’s sales in 2022 came from gold, there could be an upside to the stock if investors eventually seek safe-havens. Separately, Barrick’s increasing focus on copper is also likely to be beneficial for the company in the long run, as the metal sees higher demand as the global economy moves to green energy solutions and electric vehicles. Barrick’s revenue from copper rose by over 75% in 2021 and by almost 37% in 2022. The company could also have an edge over other miners, considering that copper often occurs alongside gold in large-scale deposits and Barrick has also proven adept in working in developing markets such as Africa and Pakistan, where other western players have been reluctant to venture into.
We estimate Barrick Gold valuation at $25 per share, which is about 25% ahead of the current market price. See our analysis of Barrick Gold revenue for more details on the company’s business model and key revenue streams.
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|S&P 500 Return||0%||-22%||84%|
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 Month-to-date and year-to-date as of 6/22/2022
 Cumulative total returns since the end of 2016
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.