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Written by Puja Tayal at The Motley Fool Canada
The 2023 earnings season was good for Barrick Gold (TSX:ABX) as the gold price continued to trend above US$1,900 over hopes of an interest rate cut. The mining company produced gold at US$1,334 per ounce and realized a gold price of US$1,948 per ounce, up 13% during the quarter. The high gold prices increased its net earnings per share by 200% to US$0.72. Despite high gold prices and strong earnings, Barrick Gold’s share price trades closer to its 52-week low of $18.65. The weakness in share price reflects the overall stock market sentiment.
Barrick Gold’s financial stability
Barrick Gold expects to increase its gold production in 2024. The company has maintained a strong balance sheet position with a net debt of just $578 million. Its free cash flow increased by 50% to $646 million, giving it the flexibility to continue paying a quarterly dividend of $0.10 per share.
Since Barrick Gold’s profits depend heavily on the gold price, it offers a performance-based dividend. For every $500 million increase in net cash, it gives a $0.05 dividend per share over and above the $0.10 dividend. 2022 was the best dividend year for Barrick Gold, but it normalized in 2023.
Barrick Gold’s stock price momentum
The gold stock has fallen 16.5% since January 15, closer to its October 2023 low, when fears of an interest rate hike dimmed investor expectations. The gold price has crossed US$2,000 as Japan and the United Kingdom fell into a recession. Gold prices increase in a weak economy as gold is a safe haven metal that can be used as a medium of exchange anywhere in the world. If a country’s currency weakens, gold strengthens as investors move to buy gold owing to its intrinsic value.
If we look at Barrick Gold’s stock price momentum, it surged 25% from its October dip as inflation surged. The company expects the gold price to stay above US$1,900 throughout 2024, keeping the stock price range bound. But if the US economy falls into a recession, you could see a pullback before a sudden surge in the stock as investors shift to buying gold to preserve their assets.
Should you buy the dip?
Barrick Gold is a good alternative to investing in gold price fluctuations and for diversifying your portfolio across asset classes. The stock is currently at a lower price, reducing the downside risk. It can act as a hedge if the economy falls into a recession, as the stock price could surge as much as 80% in a market crash. But if the global recession is not severe, you might see a 20–25% surge in the stock price. In either case, buying the dip has its merits.