The 2023 earnings season was good for Barrick Gold (TSX: ABX) as the gold price continued to trend above US$1,900 over hopes of an interest rate cut. The mining company produced gold at US$1,334 per ounce and realized a gold price of US$1,948 per ounce, up 13% during the quarter. The high gold prices increased its net earnings per share by 200% to US$0.72. Despite high gold prices and strong earnings, Barrick Gold’s share price trades closer to its 52-week low of $18.65. The weakness in share price reflects the overall stock market sentiment.
Barrick Gold’s financial stability
Barrick Gold expects to increase its gold production in 2024. The company has maintained a strong balance sheet position with a net debt of just $578 million. Its free cash flow increased by 50% to $646 million, giving it the flexibility to continue paying a quarterly dividend of $0.10 per share.
Since Barrick Gold’s profits depend heavily on the gold price, it offers a performance-based dividend. For every $500 million increase in net cash, it gives a $0.05 dividend per share over and above the $0.10 dividend. 2022 was the best dividend year for Barrick Gold, but it normalized in 2023.
Barrick Gold’s stock price momentum
The gold stock has fallen 16.5% since January 15, closer to its October 2023 low, when fears of an interest rate hike dimmed investor expectations. The gold price has crossed US$2,000 as Japan and the United Kingdom fell into a recession. Gold prices increase in a weak economy as gold is a safe haven metal that can be used as a medium of exchange anywhere in the world. If a country’s currency weakens, gold strengthens as investors move to buy gold owing to its intrinsic value.
If we look at Barrick Gold’s stock price momentum, it surged 25% from its October dip as inflation surged. The company expects the gold price to stay above US$1,900 throughout 2024, keeping the stock price range bound. But if the US economy falls into a recession, you could see a pullback before a sudden surge in the stock as investors shift to buying gold to preserve their assets.
Should you buy the dip?
Barrick Gold is a good alternative to investing in gold price fluctuations and for diversifying your portfolio across asset classes. The stock is currently at a lower price, reducing the downside risk. It can act as a hedge if the economy falls into a recession, as the stock price could surge as much as 80% in a market crash. But if the global recession is not severe, you might see a 20–25% surge in the stock price. In either case, buying the dip has its merits.
However, do not expect much from the stock over the long term as gold tends to underperform in a weak economy. So invest with the intent to sell in the short term.
