When you wish to safeguard against inflation, gold mining stocks (since they offer the most direct exposure to the asset) are generally considered a good investment. Gold is considered a safe asset, especially when the economy is weak or suffering from the impact of inflation because, in such events, gold doesn’t just hold its value; it experiences a rise in demand.
But even if gold stocks are a good investment against inflation, why choose Barrick Gold (TSX: ABX)? Understanding what Barrick has to offer as a stock and business can help you answer this question.
The company
Barrick Gold is one of the largest gold mining companies in the world, and based on the production figures last year, it was the second largest producer in the world. The company boasts the largest Tier-1 gold assets portfolio in the world, i.e., mines with at least 10 years of life and half a million ounces of annual production. Barrick Gold has six such mines and a partial (or full) stake in several other gold projects.
The portfolio is also geographically diversified, with operations in at least 18 countries. This gives the company protection against regional issues that may impact the company’s ability to sustain its operations or the cost of these operations. It also gives the company more control over overall production costs, access to almost all major markets, and new opportunities.
The stock
No matter how compelling the underlying business is, if the strengths don’t translate well into the stock’s performance, there is little benefit to investing. Barrick Gold is not a rewarding stock per se, returning roughly 50% in the last decade, including dividends. That’s less than how much the TSX index appreciated over the same period.
But it’s a slight misrepresentation of the stock’s growth potential, as it includes the brutal fall the stock experienced between 2011 and 2015. It was not specific to Barrick Gold, and many other gold miners also suffered from gold’s lackluster performance and slowing demand in the post-recession bull market.
In recent years, Barrick has followed the typical pattern associated with gold demand – bullish when the market was down and bearish when it went up. It has fallen over 43% from its 2020 peak, and apart from a few short bursts upward, the trend has mostly been bearish.
The dividends have been inconsistent, with multiple slashes and raises in the last five years alone. The yield is modest at best at 2.4%, which is quite unattractive considering the scale of its discount.
Foolish takeaway
Barrick Gold can be a great way to deal with inflation when it causes or is synced with a market crash. But when the market is bullish or simply fluctuating, a golden giant like Barrick may not serve as the best hedge against inflation. If it falls faster than inflation, it can erode your savings, so not buying it may be the smarter move, especially when you can’t rely on the dividends to offset the balance.
