Barrick Gold (TSX: ABX) stock fell 4.9% in the month of October. The stock’s move correlated with a decline in the price of gold, the main commodity it mines. Over the course of October, gold fell from US$1,723 to US$1,633 — a 5.2% decline. Barrick’s stock price has been consistent with moves in the price of gold, which makes sense, because Barrick mines and sells gold for a profit. It also sells copper, which has been going down in price, too.
Is it time to buy Barrick Gold stock? The company’s most recent earnings release was very good, showing positive growth in revenue, earnings, and free cash flow. However, the release I’m referring to was for the second quarter (Q2); Barrick’s third-quarter release was not out at the time of this writing. Gold prices fell significantly over the course of the third quarter, so the fact that Barrick’s Q2 release was strong does not automatically make its stock a buy.
Why ABX stock fell
The reason Barrick Gold stock fell in October was almost certainly the decline in the price of gold. As mentioned previously, the company’s most recent earnings release was very good, showing metrics like
- A US$1,861 selling price for mined gold, up 2.2%;
- $488 million in net income, up 18.7%; and
- $169 million in free cash flow (a cash-only measure of profit), up from a loss.
These numbers were all very strong, so, obviously, the second-quarter release was not the reason why Barrick sold off. The declining price of gold was the more likely culprit. If you look at the numbers above, you’ll see that Barrick was selling gold for US$1,821 in the second quarter. That’s a lot higher than the current gold price, US$1,633. Most likely, today’s earnings release will show lower revenue for Barrick in the third quarter compared to the same quarter a year before. Investors are already anticipating that to occur and are selling the stock as a result.
Is now the time to buy?
Having looked at reasons why Barrick Gold stock is falling, it’s time to ask: Is now the time to buy?
Certainly, ABX stock costs less now than it did at the start of the year, but that doesn’t necessarily mean it’s a great value. If gold prices keep going down, then Barrick stock will go down, too. There are some reasons to think we haven’t seen a bottom in gold yet. There is a weak negative correlation between gold prices and interest rates. In plain English, gold has a mild tendency to go down in price when interest rates go up. Yesterday, the Federal Reserve signaled that it wasn’t done raising interest rates, which may signal further weakness in gold.
However, there are factors beyond just the price of gold that influence ABX’s price. The company struggled with debt in the past and made some progress in reducing it in 2020 when gold prices spiked. So, there are some things to like about this stock from a fundamentals standpoint. For me personally, though, it’s a very risky bet.
