Barrick Gold Can Be a Hedge If Inflation Isn’t the Worst Case Scenario

It’s been a week since Barrick Gold (NYSE:GOLD) reported earnings and GOLD stock has barely moved. In fact, GOLD stock is down 17.5% in 2021 despite turning positive briefly in May. 

I suppose investors could be concerned about a year-over-year revenue decline. But that would seem to be offset by a corresponding increase in profits. So what’s really going on? I don’t know if there’s a simple answer. 

Is Gold No Longer an Inflation Hedge? 

If you’re an investor of a certain age, you would expect gold to be soaring with inflation (transitory or not) on the rise. On the other hand, the notion that gold is a hedge against inflation is being tossed to the side by many investors who believe that equities are the way to go.  

And if you buy into that theory then it makes sense that mining stocks would be struggling even as the major indexes reach all-time highs.  

But you don’t have to be a permabear to look at the markets with just a little bit of skepticism. Over $10 trillion and counting has been pumped into the economy. The question “What do you think is going to happen?” hangs over the markets like the sword of Damacles.  

And if you find yourself asking that question, then you may also realize that inflation may not be the worst-case scenario for the economy.  

So let’s look at why now may be an ideal time to snap up shares of GOLD stock.  

Gold Has a Solid and Rising Floor 

I’ve been thinking about the price of gold lately. Specifically, I’ve been wondering why it’s not moving that much. And by moving, I mean moving downwards. It seems that every day one or more of the major exchanges are closing at or near record highs.  

And this isn’t a recent phenomenon. In the last 12 months, the S&P 500 is up 32.3%. In that same time period, the spot price of gold is down 8.4%. Typically, gold and equities have an inverse correlation. So it’s not surprising that gold is down. But it’s a bit curious that gold isn’t down even more.  

And then there’s Bitcoin (CCC:BTC-USD) which some say is replacing gold as an inflation hedge. The digital currency is up 300% in the same 12-month period. But again, gold is only down 8.4%. 

Then there’s this. Nearly one year ago from the time of this writing (August 6, 2020), gold closed at an all-time high of $2.064.40. However that means that the price of gold has only declined 15%.  

And if you’ll indulge me with one more reference point. On August 13, 2019, the spot price of gold was 18% lower than it is today. That means that gold is higher today than it was before the pandemic began.  

The point of all this math is to say that there are investors who aren’t buying into the party line about equities. And that’s one reason to get in on GOLD stock at a bargain price.  

What If Inflation is Not the Real Threat 

Inflation has been a hot topic in the financial press. But even if inflation is as transitory as many believe it will be, there may be a worse problem. A recent article by Bloomberg references a small but growing contingent of portfolio managers who are concerned about stagflation. 

Stagflation is a nasty cocktail that emerges when the economy meets three conditions: rising costs, falling employment and slow growth. There’s plenty of evidence of rising costs. There’s also concern that GDP growth is slowing. The employment picture is the third leg of this stool. And the July jobs report would seem to throw cold water on the idea that employment is falling.  

But this really comes down to a case of believing the numbers or trusting your lying eyes. Small businesses in my small town are having trouble finding workers. And on a recent trip to a larger metropolitan area, I found the same to be true.  

Whether this will be reflected in future jobs report remains to be seen. But why wait? Investing in Barrick Gold, particularly at its current price, looks like a set it and forget it hedge. Particularly when you consider that the company is starting to increase its dividend again.