Barrick Gold is a Hold as Long as Gold Prices Stay Stagnant

Key Points

• After an initial drop after its earnings report, Barrick Gold stock is moving higher. 
• The company is reporting lower production which is a drag on earnings. 
• GOLD stock is also under pressure as investors are investing in the stronger dollar.  
• Mining stocks are ideal for diversification, but if you’re looking for capital appreciation, you may be disappointed.  

Barrick Gold (NYSE: GOLD) was up more than 6% the day after the stock dropped 9% after delivering earnings on November 3. The report gave investors good news and bad news.  

On the positive side, the gold miner beat on both the top and bottom lines. Revenue came in at $2.53 billion which was 2.5% better than the $2.47 billion that was forecast. And earnings were even stronger. The 13 cents earnings per share were more than 18% higher than the 10 cents EPS analysts were expecting. 

Now the bad news. For the third consecutive quarter, the company posted declining earnings. And both revenue and earnings are significantly lower on a year-over-year basis.  

GOLD stock quickly sliced through a previous support level, and it undoubtedly confounded traders who saw a double bottom form in the stock price in the last two months. Is this a time to buy on the dip, or is a stronger dollar a time to stay away from gold? 

The Company Missed Its Production Targets 

According to Barrick CEO Mark Bristow, the company's gold production fell 9% from 1.09 million ounces to 998 ounces. This enabled a 22.7% year-over-year increase in the company’s all-in-sustaining costs (ASIC), a key industry metric. Barrick also announced its ASIC for copper production increased. However, in this case, the company saw an increase in copper production.  

Barrick’s issues are not isolated. Newmont Corporation (NYSE: NEM) announced an even steeper drop in production volume.  

Barrick says it’s still on schedule to fulfill its full-year production forecast. However, that was not enough to keep GOLD stock from dropping initially. And even with the bounce back this morning, the stock still sits below earlier support levels.  

And for that, you can blame the Federal Reserve. 

Has Gold Lost Its Luster? 

Gold is having a case of mistaken identity.  One of the most frequently stated reasons to own gold is that it serves as a hedge against inflation. However, the spot price of gold hasn’t served as much of a hedge against inflation in 2022. At the present time, a strong dollar and rising interest rates are making cash and even bonds more attractive options for investors. 

In fact, in the wake of the Federal Reserve’s fourth 75 basis point interest rate hike in 2022, the spot price of gold dropped to its lowest level since 2020. And while gold may be outperforming equities, less bad is hardly a bullish argument.  

Nevertheless, gold traders seem content to hold on to their gold and that means that gold prices may not have hit a bottom yet.  

Is GOLD Stock a Buy-the-Dip Candidate? 

In addition to being a hedge against inflation, another common argument for owning gold is that the yellow metal helps diversify an investor’s portfolio. That remains indisputable. And mining stocks like Barrick Gold are considered a way to invest in gold without having to take possession of the physical metal.  

Mining stocks also give investors the benefit of a dividend that they can’t get from owning physical metal. Barrick Gold doesn’t offer the best dividend in its class, but investors do get something for holding onto the stock.  

Right now, the GOLD stock should be a buy, but with gold continuing to not move that much, and interest rates likely to go higher, it’s likely to trade in a range that makes it hold for now.