Barrick Gold Stock (TSX:ABX): Could the Share Price Hit $35 in 2020?

Is the gold rally just getting started?

| More on:
Gold bars

Image source: Getty Images

Barrick Gold (TSX:ABX)(NYSE:GOLD) has enjoyed a nice rally since the middle of last year and investors are wondering if the bounce is the beginning of an extended recovery.

Let’s take a look at the current situation in the gold market and try to decide whether this might a good time to add Barrick Gold to your portfolio.

Global uncertainty

Gold is widely viewed as a safe haven asset and cash often flows into the yellow metal when investors are concerned about geopolitical tensions or global financial risks.

Through most of 2019 the heated trade battle between China and the United States propped up gold demand. Punitive tariffs put heavy pressure on certain industries, disrupting supply chains and forcing businesses to shelve investment decisions amid the uncertain outcome of the negotiations.

The announcement of the phase one agreement and subsequent signing of the trade pact should have put pressure on gold prices, but the market remained strong through that time frame.

This suggests that gold traders aren’t convinced the battle is complete and might be anticipating more turbulence. Indeed, tariffs remain in place and the two sides are far from a broad-based agreement.

The killing of one Iran’s top military leaders by the United States in January increased tensions in an already unstable Middle East. This followed the September attacks on Saudi Arabia’s oil facilities.

The U.S. blamed Iran for that attack. Saudi Arabia didn’t respond with military action, but global investors are concerned an escalation of tensions could trigger new military conflict.

Roughly 20% of global oil transport passes through a narrow waterway called the Strait of Hormuz that is located between Iran and Oman. Pundits have speculated that Iran might attempt to block the waterway. This would likely lead to a strong reaction from the United States and Iran’s oil-producing neighbours.

The coronavirus outbreak in China has added more uncertainty to the outlook for the global economy. Tourism, manufacturing, and retail sales are being impacted and China’s significant role in the world’s intricate supply chains means a domino effect could be a risk.

Stock markets are holding up well at this point, and gold also continues to maintain its gains.

Next leg up

Central banks around the globe could launch a new round of aggressive rate cuts in an effort to counter the impact of slowing economic activity. A race to devalue currencies is possible and the world is already seeing trillions of dollars in government bonds trading at negative yields.

This makes no-yield gold, which trades in U.S. dollars, more attractive for those seeking to protect wealth.

Is Barrick Gold headed to $35 per share?

Barrick Gold spent the better part of the past decade in the penalty box after the company loaded up on debt to make large expensive acquisitions at the top of the market.

The share price fell from $50 in 2011 to below $10 in 2015. Contrarian investors who had the courage to step in at that point have done well. Today the stock trades at $26 at writing.

Barrick recently reported solid results for 2019 and the outlook should be positive, even if gold simply maintains its recent gains. The company has reduced debt from US$13 billion a few years ago to net debt of US$2.2 billion at the end of 2019.

The CEO indicated the company could have zero net debt by the end of 2020 if the market remains positive. Barrick’s board just raised the dividend by 40%, so the company is obviously comfortable with the cash flow situation.

Gold is up US$300 per ounce since the end of May last year. Another US$300 increase through the remainder of 2020 is certainly possible.

Barrick gold is targeting average annual gold production of about five million ounces over the medium term. A sustained US$300 increase in the gold price adds an extra US$1.5 billion in cash. In this scenario, Barrick Gold has the potential to generate substantial free cash flow and the market might not be appreciating that opportunity.

Gold can be volatile, so I wouldn’t back up the truck, but Barrick Gold appears attractive today and a move to $35 by the end of the year wouldn’t be a surprise.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker owns shares of Barrick Gold.

More on Metals and Mining Stocks

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

Here Are 3 Phenomenal Reasons to Buy Lundin Stock Right Now

Lundin stock (TSX:LUN) has seen its share price climb higher from external and internal factors that are enough to make…

Read more »

silver metal
Metals and Mining Stocks

Forget Gold: This Other Metal Is Sure to Soar Higher!

The price of gold continues to hit the headlines, but this material is also making waves and should continue to…

Read more »

ETF chart stocks
Metals and Mining Stocks

3 Best Commodity ETFs to Buy Now

Investors looking to get in on security during volatility should consider these three commodity ETFs, which do well no matter…

Read more »

gold stocks gold mining
Metals and Mining Stocks

Gold Prices Are on the Rise: Time to Invest?

Gold prices are rising, but short of buying up some bullion, what are some ways that Canadian investors can get…

Read more »

silver metal
Metals and Mining Stocks

Silver Surge: 2 Mining Stocks to Play the Recent Rally

Pan American Silver (TSX:PAAS) stock and another top value play to ride the silver bull run.

Read more »

gold stocks gold mining
Metals and Mining Stocks

With Gold Soaring, Here’s 1 Mining Stock I’d Buy Now

Barrick Gold (TSX:ABX) stock could continue to move higher as the precious metal skyrockets in 2024.

Read more »

silver metal
Metals and Mining Stocks

Why Endeavour Silver Stock Jumped 10% on Friday

Endeavour (TSX:EDR) stock rose significantly last week after earnings that blew past estimates and a drawdown that means more growth.

Read more »

Metals
Stocks for Beginners

Steel Is in Demand: 2 Canadian Stocks That Should Benefit

Steel stocks are making a comeback, with 2024 and 2025 marked as huge years for the industry. And these two…

Read more »