Barrick Gold stock was trading sharply lower in the US early price action today as gold prices tumbled after the Federal Reserve meeting. Should you buy the dip in Barrick Gold stock?
Barrick Gold is the second largest gold mining company globally and like all gold miners, its earnings are sensitive to the movement in gold prices. Gold prices rose sharply in 2020 and hit their all-time highs. However, the positive news flows about COVID-19 vaccine candidates triggered a sell-off in safe-haven assets like gold and silver.
Federal Reserve meeting
Meanwhile, gold prices are falling after the Federal Reserve meeting concluded yesterday. The US central bank raised its 2021 inflation projection to 3.4% while the dot plot said that the Fed would raise twice in 2023 which is much more hawkish than the previous forecast when the Fed members did not saw a rate hike until 2024. However, a lot has changed between now and the Fed’s previous meeting. The May inflation data showed that prices are rising at the highest pace in decades which seems to have prompted the Fed to move quickly on raising rates.
Barrick Gold stock falls
Now, gold and interest rates are inversely proportional. As a non-interest-bearing asset, gold’s appeal is lower in a high interest rate environment as investors instead prefer to park their money in debt assets. Now, gold miners are a leveraged play on gold prices and rise and fall more than the movement in gold prices. Barrick Gold is now down 32% from their 52-week high prices and is in a bear market territory, having fallen more than 20% from their peaks. The fall in Barrick Gold stock has been far more than the correction in gold prices.
Last year, Berkshire Hathaway had also invested in Barrick Gold despite its chairman Warren Buffett’s bearish views on gold. However, the company has since exited the stake and it’s not certain whether Buffett or one of the other investment managers at Berkshire made the investment.
Coming back to Barrick Gold, the stock has fallen sharply amid the crash in gold prices. The outlook for Barrick Gold stock is dependent on the movement in gold prices. While gold currently looks out of favor with investors amid rising rates and a booming economy, it might bounce back. The medium to long-term outlook for gold looks positive especially given the still uncertain economic environment.
Barrick Gold stock forecast
According to the estimates compiled by CNN Business, Barrick Gold has a median target price of $29 which is a premium of over 37% over current prices. The stock has 18 buy, four hold, and one sell rating. While Wall Street analysts have been bullish on Barrick Gold, the falling gold prices have been weighing down the stock.
The gold price outlook is bearish
Gold prices have fallen below $1,800 per ounce and today’s fall will go down in history as among the leading intraday fall for prices. Meanwhile, analysts sound bearish on gold prices after the Fed meeting. “Contrary to popular belief that high inflation leads to high gold prices, gold would only benefit massively if inflation goes above 4%,” said Bernard Dahdah, senior commodities analyst at Natixis. He added, “It is no longer the Covid story that is influencing gold, it is the recovery story, and the main concern is the Fed raising rates.”
“We have a negative outlook, expecting gold to fall to $1,600 an ounce over the next six to 12 months,” said Giovanni Staunovo, an analyst at UBS Group AG. Staunovo added, “At some point the Fed will not talk about taper but also implement it.”
Ole Hansen, head of the commodity strategy at Saxo Bank also echoed similar views. According to Hansen, “For now the market trusts the judgment of the Federal Reserve and until data potentially proves them wrong, gold and with that also silver may face another challenging period.”
Should you buy Barrick Gold stock?
Barrick Gold stock might remain under pressure for some time on fears of rate hikes. However, given the uncertain economic environment, gold stocks could be a contrarian bet.
You can buy gold either in physical form or in digital form. You can buy the yellow metal through any of the reputed brokers for gold. Alternatively, you can also trade in precious metals through CFD (Contract for difference). We’ve compiled a list of some of the best CFD brokers.
If you are looking at a long-term allocation, you can also invest in a gold ETF. By investing in an ETF, you get returns that are linked to the underlying index after accounting for the fees and other transaction costs. There is also a guide on how to trade in ETFs. You can also choose from ETFs that invest in gold mining companies like Barrick Gold.