Will the Rise in Gold Fuel a Rally in Barrick’s Stock?

This was submitted by Lior Cohen, M.A. at Trading NRG using the Trefis Contributor Tool

In a recent review by Bloomberg, Barrick officials claim that gold producers’ stocks are due for a rally after they have been underperforming for years compared with the sharp gains in gold price.

Is Barrick, the leading gold producer in the world due for a comeback in 2012? Barrick officials claim that not only Barrick but also other leading gold producers didn’t enjoy the rally of gold price in recent years as many investors seek gold based funds such as SPDF, and thus rendering metal producers’ stocks cheep. This argument has some merit because SPDF didn’t expand very promptly during recent years.

The complete analysis on Barrick and gold is at Trading NRG

Without getting into a micro analysis on Barrick’s financial reports, even though a quick glance does show an operational loss during 2009, let’s examine the situation from a macro perspective by comparing gold with Barrick’s stock performance in the last few years. With this information let’s try to answer is it likely that Barrick will make a comeback on account of the high price of gold?

The chart above shows the developments of gold price and Barrick’s stock between the years 2008 and 2012. We can extract several points from this chart:

While gold had a steady growth and eventually (up to February 2012) rose by nearly 90%, Barrick’s stock slipped by 1.9%.

Finally, during 2011 Barrick fell by 14% while the average gold price rose by 18%.

Therefore, the possibility of Barrick’s stock making a comeback only because of the currently high gold seems less likely given Barrick’s performance during 2011. Don’t forget that during 2010 when Barrick rose by nearly 36% its operational profitability was nearly 40% and its net profitability was nearly 29%. So even though gold price had a big part in reaching this profitability, without having such big numbers the stock probably wouldn’t have made such a comeback in 2010.

It leaves us with the possibility that Barrick’s price will rally if gold will have another monster year as it had back in 2009 or 2010. But since there are little expectations (at this moment) that gold price will sharply rise and reach the $2,000 mark by the end of the year, I speculate a comeback of Barrick solely because of the future development of gold seems less likely in the months to come.

Disclaimer and Disclosure:

This is by no means an investment advice only general market analysis. See here full disclaimer.

The Author has no position in Barrick, SPDF or gold.

For further reading:

Gold and Silver Prices Outlook for March 2012