Can Barrick Gold Continue to Outperform Its Peers in 2017?



Gold price outlook

Gold prices touched a ten-month low after the Federal Reserve increased interest rates in December. The Fed’s stance was more hawkish than expected, which hit precious metals hard. The Fed is now expecting three rate hikes in 2017.

Gold is highly sensitive to rising rates, as they increase the cost of holding non-yielding assets such as gold. Since gold doesn’t pay interest, rising returns from US bonds and other investments are negative for the precious metal. Rising rates should also strengthen the US dollar as US investments become attractive compared to those of other countries, especially compared to those countries that are following zero-interest-rate or negative-interest-rate policies. A strong dollar is also negative for gold, as it’s the currency in which gold is denominated. Given these factors, gold’s short-term outlook doesn’t seem very bright.

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Driver for gold miners’ revenues

One of the major revenue and earnings drivers for the companies involved in gold mining is realized gold prices. These depend mostly on the gold prices prevailing in the market. Thus, looking at the outlook for gold prices in 2017, the prospects of gold miners might not look that bright. However, these companies’ performances will also depend, to a large extent, on company-specific factors.

Barrick’s outperformance

Among its close peers (GDX), Barrick Gold (ABX) has shown one of the best stock performances in 2016. As of December 27, 2016, its share price has risen 92% against a gain of 41% in the VanEck Vectors Gold Miners ETF (GDX) and just a 5.5% increase in the SPDR Gold Shares (GLD). Goldcorp (GG), Newmont Mining (NEM), and Kinross Gold (KGC) have risen 8.4%, 77%, and 61%, respectively.

In this series, we’ll see whether Barrick stock can continue its outperformance in 2017. We’ll analyze factors such as production growth, cost position, financial leverage, and relative valuation to gauge its future outlook.

We’ll start by looking at its production growth in the next part of this series.


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