It is no secret that stock market investors have been facing a tough time investing in the TSX for the past few weeks. The recent-most interest rate hike by the U.S. Federal Reserve sparked a downturn that has seen even the resilient energy sector pull back. Despite the series of aggressive interest rate hikes, inflation is worrying investors left, right, and centre.
The inflationary environment and rising borrowing costs are slowing down economic growth, leading to fears of a recession. Commodities are becoming increasingly expensive, and many investors keep pulling their funds from markets to invest in safe-haven assets. Conditions like these tend to see commodities like gold become more expensive.
Gold is valued at around the US$1,800 mark at writing, but its prices could rise if the situation persists. Metals and mining stocks like Barrick Gold (TSX:ABX)(NYSE:GOLD) might present Canadian investors with an ideal investment opportunity amid the volatile market conditions. Today, I will discuss why Barrick Gold stock could be a good pick for investors to hedge against inflation.
Recessions, inflation, and gold
Gold has historically proven to be a popular hedge against inflationary environments, because its price tends to appreciate in the long term. The rare yellow metal’s value typically rises when equity markets falter. While that has not been the case so far amid the pullback, gold prices could start increasing soon.
Central banks traditionally increase interest rates to control inflationary environments. The last two years saw Canadians enjoy historically low interest rates. Countries worldwide also pumped liquidity into their economies to control the economic impact of the pandemic. However, it led to inflation reaching multi-decade highs.
The U.S. Fed hiked its interest rates by 75 basis points after its latest meeting — the most substantial hike since 1994. Unfortunately, it appears as though further interest rate hikes might be on their way from the U.S. Fed and the Bank of Canada (BoC). The Canadian central bank has announced that it is prepared to act more forcefully with its tightening monetary policies to curb inflation.
Rising recessionary fears
Higher interest rates have kept gold prices at bay, making people feel more inclined to keep their capital in the form of bank deposits to leverage higher interest rates. However, the persistent inflation and rising interest rates could lead to greater fears of a recession taking hold, causing investors to flock toward gold as a safe haven.
A greater cash flow towards gold could spell great news for Barrick Gold investors. Barrick Gold is a $42.22 billion market capitalization gold producer with mining operations worldwide. Headquartered in Toronto, it is one of the world’s biggest gold-producing companies, and it looks strong right now.
The gold stock recently raised its shareholder dividends to $0.20 per share alongside a $0.10-per-share performance component. The dividend hike reflects its fundamental strength and robust cash flows.
Barrick Gold ended the first quarter of fiscal 2022 with over $500 million in cash on its balance sheet. Higher gold prices could significantly boost its financial performance, translating to better returns for Barrick Gold investors.
Foolish takeaway
Analysts have placed a 12-month average price target of $36.20 per share for Barrick Gold stock. It trades for $23.74 per share at writing and boasts a 2.15% dividend yield. If gold prices indeed rise, Barrick Gold investors could see substantial upside in the coming months. It could be an excellent investment to consider adding to your self-directed portfolio right now.
