Why We’re Lowering Our Price Estimate For Barrick Gold To $16

November 21st, 2016 by Trefis Team

Gold prices have been negatively impacted by strengthening expectations of a Fed interest rate hike over the past few weeks. These expectations have been corroborated by statements made by the Federal Reserve chairwoman last week to Congress, who said that an interest rate hike “could well become appropriate relatively soon.” [1] A seventy-third consecutive month of job gains has culminated into the unemployment rate dipping below 5% in October, as per the latest jobs report released earlier this month. [2] Moreover, expectations of strengthening economic growth have also contributed to the decline in gold prices, particularly in the wake of the U.S. presidential election.

President-elect Trump’s pro-business campaign promises such as lessening the regulatory burden on businesses, lowering corporate tax rates, and a $550 billion infrastructure development plan have boosted expectations of economic growth going forward, as evidenced by the sharp rally in the stock markets since the election. [3] Improving economic conditions tend to lower the safe-haven investment demand for precious metals such as gold. In addition, since gold as an investment only offers capital gains, rising interest rates tend to shift investors towards other securities that offer returns linked to interest rates. With recent developments negatively impacting the gold pricing environment, we have revised our forecasts for gold prices. The following graph illustrates our latest expectations for gold prices, which represents a 5% decline in prices by the end of our forecast period as compared to our previous forecast.

In addition to modifying our gold pricing forecast, we have also revised our margin forecasts downward along with the changes to the pricing forecast. These have translated into our new price estimate for the company.

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Have more questions about Barrick Gold? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Barrick Gold

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Notes:
  1. Janet Yellen Says Interest Rates Could Rise “Relatively Soon”, Nasdaq [↩]
  2. U.S. unemployment falls to 4.9% before election, CNN Money [↩]
  3. Trump presidential transition site pledges border wall, end of Dodd-Frank Act, Financial Times [↩]