- Barrick Gold shares returned more than 9% year-to-date.
- The war in Ukraine and the rising US interest rates should continue to affect the price of gold.
- Buy-and-hold readers may consider investing in gold at current levels.
- For tools, data and content that can help you make better investment decisions, try InvestingPro.
Shareholders of Canadian mining company Barrick Gold (NYSE 🙂 have seen the value of their investment drop by nearly 16% over the past 12 months. But the GOLD stock has appreciated more than 9.2% since the beginning of the year (YTD).
In comparison, the index has gained less than 1% so far this year (making it almost stable). As for the index, it is currently down more than 18% since the beginning of the year.
On March 8, when the price of GOLD fell to $ 2,000 per troy ounce, the GOLD stock also fell above $ 26 to hit a 52-week high.
The stock’s 52-week range is $ 17.27 to $ 26.07, and the market capitalization (cap) is currently $ 36.9 billion.
Through Barrick Gold, investors are exposed to changes in the price of gold and. The group has an extensive portfolio of gold assets and tier 1 copper mines in the industry, with operations in 18 countries.
But for miners like Barrick, the price of gold not only represents a major driver of growth, but also a major risk. So far this year, the price of polished bullion has been relatively stable, reaching $ 1,850.
Rising interest rates are generally bearish for gold. However, political uncertainties, such as the war in Ukraine, and higher inflation generally lead to a bullish scenario for the precious metal.
Meanwhile, copper futures are trading around $ 4.30. As the world moves to electric vehicles (EVs), many analysts have become long -term advocates of copper. Although the GOLD stock is not a pure play on copper, management seeks to increase the contribution of this industrial metal to the bottom line.
Updates on recent results
Barrick Gold released Q1 figures on May 4. Management reported gold production of approximately 1.0 million ounces (oz) and copper production of approximately 101 million pounds (lb).
Revenue dropped 3% year over year (YoY) per quarter to $ 2.85 billion. Fixed net income per share was 26 cents, compared to 29 cents last year. For the quarter, free cash flow (FCF) was $ 393 million.
Commenting on these results, CEO Mark Bristow said:
“As previously reported, the first quarter was weaker, especially compared to the fourth quarter of 2021, which included a record performance from Nevada Gold Mines. With a stronger performance expected in the second half, si Barrick remains on track to reach its production forecast for 2022. “
Prior to the announcement of first quarter earnings, the GOLD stock was changing hands around $ 23. On May 20, GOLD stock closed at $ 20.76, down more than 9.5%. Meanwhile, the current price supports the dividend yield of 1.93%.
What to expect from GOLD stock
Of the 22 analysts polled by Investing.com, the GOLD stock was rated “outperforming,” with a 12-month average price target of $ 27.70 for the stock.
Such a move would suggest an increase of almost 33.4% from the current price. The target range is between $ 36 and $ 8.11.
Similarly, according to some valuation models, including P/E or P/S multiple or terminal value, the average fair value of GOLD share at InvestingPro stands at $ 27.54.
GOLD Fair Value
Source: Investing Pro
In other words, the fundamental analysis indicates that the stocks could rise more than 32.5%.
As part of the short -term sentiment analysis, it is important to also look at the indicated volatility levels of GOLD options. Implied volatility generally shows traders the market’s view on the potential moves of a security, but it does not predict the direction of the move.
Gold’s current indicated volatility is approximately 8% lower than the 20-day moving average. In other words, the implied volatility is trending lower because market options suggest calmer trading days are ahead.
We expect the GOLD stock to form a base of between $ 20 and $ 22 in the coming weeks. Then, stocks can start a new rise.
Add GOLD stocks to portfolios
Supporters of Barrick Gold who believe that the current investment environment favors higher gold and copper prices may consider investing in GOLD stocks today. Their target price will be $ 27.54, in line with the target provided by the main models.
Investors may also consider buying an exchange-traded fund (ETF) of which GOLD stock is a component. Here are some examples:
- VanEck Gold Miners ETF (NYSE 🙂
- iShares North American Natural Resources ETF (NYSE 🙂
- VanEck Natural Resources ETF (NYSE 🙂
- VanEck Africa Index ETF (NYSE 🙂
- First Trust BuyWrite Income ETF (NASDAQ 🙂
Finally, investors expecting the GOLD stock to rebound in the coming weeks may consider setting up a covered call option.
Most option strategies are not suitable for all retail investors. Therefore, the following discussion of GOLD stocks is offered for educational purposes and not as an actual strategy for the average investor to follow.
Covered call on GOLD stock
Price at the time of writing: $ 20.76.
For every 100 shares held, the covered calling strategy requires the trader to sell a calling option with an expiration date at some point in the future.
Investors who think there may be further changes and declines soon can use a partially in-the-money covered call option (ITM). The calling option is ITM if the market price ($ 20.76 here) is higher than the strike price ($ 20).
Thus, the investor will buy (or already own) 100 shares of GOLD at $ 20.76 and, at the same time, sell the GOLD July 15 call at $ 20. This option is currently offered at a price (or premium) of $ 1.45.
The buyer of the option will pay a $ 1.45 X 100 (or $ 145) premium to the seller of the option. This calling option will stop trading on Friday 15th July.
The amount of this premium is owned by the seller of the option, regardless of what happens in the future, for example on the day of expiration.
The $ 20 calling option provides better downside protection than an at-the-money (ATM) or out-of-the-money (OTM) calling option.
Assuming a trader now enters this covered trade call at $ 20, upon expiration the maximum return will be $ 69, i.e., ($ 145-(20.76 $-$ 20.00) X 100), excluding commissions and trading fees.
The trader realizes this $ 69 gain as long as the GOLD stock price on expiration remains above the strike price on the call option (i.e. $ 20 here).
When the trade expires, the break-even point is reached at the GOLD share price of $ 19.31 (equivalent to $ 20.76-$ 1.45), excluding commissions and trading costs.
On July 15, if the GOLD stock closes below $ 19.31, the trade in this covered call setup will start losing money. Therefore, by selling this covered calling option, the investor protects himself against a potential loss. In theory, the price of a stock could drop to $ 0.
As we have mentioned in many articles, such a coverage call option will limit the increase in revenue potential. The risk of not fully participating in the potential appreciation of the GOLD stock is not enticing at all. However, within their risk/return profile, others may see that it is acceptable in exchange for the premium received.
In today’s market, it’s harder than ever to make the right decisions. Consider the challenges:
- Geopolitical turmoil
- Disruptive technologies
- Rising interest rates
To address this, you need good data, effective tools to classify it, and insight into what it means. You need to eliminate investing emotions and focus on the basics.
For that, there’s InvestingPro+, with all the data and professional tools you need to make better investment decisions. Learn more >>