Barrick Vs. Gold: Why The Stock Is Falling Behind

Barrick Gold stock (NYSE: GOLD) has gained about 14% year-to-date, currently trading at about $21 per share. This compares to the S&P 500 which remains up by about 18% over the same period. The underperformance comes even though gold prices have been surging this year, rising from levels of around $2,050 per ounce in early January to about $2,570 currently. Several factors have driven gold prices. U.S. inflation has been moderating, with the Consumer Price Index for August rising by just 2.5%, a three-year low, and this could pave the way for a rate cut by the Fed in the near term. The U.S. dollar has also weakened a bit of late and this has helped gold. Geopolitical uncertainties including the Israel-Gaza war and Russia’s invasion of Ukraine have also helped the yellow metal.  So why hasn’t Barrick – one of the largest gold producers in the world – had its stock track gold prices?

Barrick has faced significant operational challenges recently. For example, the company encountered production setbacks in the first half of the year, driven by a slower-than-expected ramp-up at the Pueblo Viejo mine, maintenance activities, and lower ore grades from some mines. Planned production was also reduced at Cortez and Phoenix. In Q2 2024, Barrick sold 948,000 ounces of gold, a 6% decline from 1,009,000 ounces in the same quarter last year. Investors view production expansion as critical, especially at times when gold prices and margins are trending higher, but Barrick hasn’t really delivered during this upcycle, and this may be weighing on its stock.

The cost situation has been mixed as well. Barrick’s all-in sustaining costs rose 11% year-over-year, reaching $1,498 per ounce in Q2. This increase is likely due to lower production, which impacts economies of scale, along with inflationary pressures on inputs like labor. Additionally, higher gold prices could be leading miners to become less disciplined about controlling costs. The faster rise in costs for Barrick may be driving investors toward more cost-efficient mining companies.

Overall, the performance of GOLD stock with respect to the index over the last 3-year period has been quite volatile. Returns for the stock were -13% in 2021, -6% in 2022, and 8% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could GOLD face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

Barrick’s production is likely to pick up a bit going forward driven by the completion of major processing plant maintenance at Nevada Gold Mines, the upgrade of Goldstrike ore processing infrastructure, better performance from Turquoise Ridge, and a steady ramp-up at Pueblo Viejo. The company also remains bullish on the trajectory of precious metal prices as well, citing relatively tight supply and a move by central banks to diversify their reserves by holding gold in place of the U.S. Dollar. Separately, Barrick’s move to scale up its copper business could drive an incremental upside for the stock, given its application in a host of futuristic industries including electric vehicles and the renewable energy sector. We have a $21 price estimate for Barrick Gold, which is roughly in line with the current market price. See our analysis of Barrick Gold valuation for more details. Also, see our analysis of Barrick Gold Revenues for more details on the company’s key revenue streams and how they have been trending.

[1] Returns as of 9/14/2024
[2] Cumulative total returns since the end of 2016