3 Ways to Earn from Barrick Gold and Silver Miner

  • Barrick Gold shares are back more than 9% year-to-date.
  • The war in Ukraine and rising US interest rates should continue to affect the price of gold.
  • Buy and hold readers may consider investing in gold at current levels.
  • For tools, data and content that will help you make better investment decisions, Try InvestingPro.

Shareholders in Canadian mining company Barrick Gold (NYSE:) have seen the value of their investment fall about 16% in the past 12 months. However, GOLD’s shares are up more than 9.2% since the beginning of the year (YTD).

By comparison, the index is up less than 1% so far this year (making it roughly flat). As for the index, it is currently down more than 18% since the beginning of the year.

On March 8, when the price of gold broke through $2000 an ounce, the gold stock also broke above $26 to reach a 52-week high.

The 52-week stock range is between $17.27 and $26.07, and the market capitalization (maximum) is currently $36.9 billion.

Through Barrick Gold, investors are exposed to fluctuations in gold prices and. The group has an extensive portfolio of Tier 1 gold and copper assets, with operations in 18 countries.

However, for miners like Barrick, the price of gold is not only a major growth driver but also a significant risk. So far this year, the price of the shiny bullion has been pretty much stable, hovering around $1,850.

Gold D1

Higher interest rates are considered bearish for gold. However, political uncertainty, such as the war in Ukraine, and high inflation generally lead to a bullish scenario for the precious metal.

Meanwhile, copper futures are trading around $4.30. As the world transitions to electric vehicles (EVs), many analysts have also become long-term copper proponents. Although gold stocks are not just a game on copper, management is looking to increase the contribution of this industrial metal to earnings.

Update on the latest results

Barrick Gold released its first quarter numbers on May 4. Management reported gold production at about 1.0 million ounces (ounces) and copper production at about 101 million pounds (lbs).

Quarterly revenue decreased 3% YoY (YoY) to $2.85 billion. Adjusted net earnings per share was 26 cents, compared to 29 cents a year earlier. For the quarter, free cash flow was $393 million.

Commenting on these findings, CEO Mark Bristow said:

“As previously reported, the first quarter was weaker, especially when compared to the fourth quarter of 2021, which included record performance from Nevada gold miners. With stronger performance expected in the second half, Barrick remains on track. To reach its production year forecasts. 2022″.

Prior to the first-quarter earnings announcement, GOLD stock was trading at around $23. On May 20, GOLD stock closed at $20.76, down more than 9.5%. Meanwhile, the current price supports a dividend yield of 1.93%.

What to expect from GOLD stock

Among 22 analysts surveyed by Investing.com, GOLD stock is rated “outperform” with a 12-month average price target of $27.70 per share.

gold consensus

Source: Investing.com

Such a move would suggest an increase of about 33.4% over the current price. Target range between $36 and $8.11.

Similarly, according to a number of valuation models, including price/earnings multiples, price/earnings multiples, or terminal values, the Average fair value of gold stock On InvestingPro it stands at $27.54.

fair value of gold

fair value of gold

Source: Investing Pro

In other words, the underlying valuation indicates that the stock could rise more than 32.5%.

As part of the short-term sentiment analysis, it will also be important to look at the levels of implied volatility of gold options. Implied volatility generally shows traders the market’s view of potential safety moves, but does not predict the direction of the movement.

The current implied volatility of gold is about 8% lower than its 20-day moving average. In other words, implied volatility is trending lower as the options markets signal that quieter trading days are ahead.

We expect GOLD stock to build a base between $20 and $22 in the coming weeks. After that, stocks can start a new recovery.

Adding GOLD shares to portfolios

Supporters of Barrick Gold who believe that the current investment environment favors higher gold and copper prices may consider investing in GOLD stocks now. The target price will be $27.54, in line with the target given by the base models.

Investors may also consider buying an exchange-traded fund (ETF) of which the GOLD stock is a part. These are some examples:

  • VanEck Gold Miners ETF (New York Stock Exchange 🙂
  • iShares North American Natural Resources ETF (New York Stock Exchange 🙂
  • VanEck Natural Resources ETF (New York Stock Exchange 🙂
  • VanEck Africa Index ETF (New York Stock Exchange 🙂
  • First Trust BuyWrite Income ETF (NASDAQ:)

Finally, investors who anticipate a gold stock rebound in the coming weeks may consider setting up a covered call option.

Most options strategies are not suitable for all retail investors. Therefore, the following discussion of GOLD stock is provided for educational purposes and not as an actual strategy to be followed by the average investor.

Covered call on GOLD shares

Price at time of writing: $20.76.

For every 100 shares held, a covered buy strategy requires the trader to sell a Call option with an expiration date sometime in the future.

Investors who believe there may be more ups and downs soon can use a slightly hedged in-the-money (ITM) call option. The call option is ITM if the market price ($20.76 here) is higher than the strike price ($20).

Thus, the investor will buy (or already own) 100 shares of gold at $20.76 and, at the same time, buy gold on July 15th at $20. This option is currently offered at a price (or premium) of $1.45.

The option buyer will pay $1.45 x 100 (or $145) to the option seller. This call option will cease trading on Friday, July 15th.

The amount of this premium is up to the seller of the option, whatever happens in the future, for example on the day of expiration.

A $20 call option offers better downside protection than an ATM or an out-of-the-money (OTM) option.

Assuming the trader now enters this covered call trade at $20, at expiration the maximum return will be $69, i.e. $145 – ($20.76 – $20.00) x 100), not including commissions and trading fees.

The trader makes this $69 gain as long as the gold stock price at expiration remains above the call option strike price (i.e. $20 here).

When the trade expires, the break-even point is reached at GOLD’s share price of $19.31 (equivalent to $20.76 – $1.45), excluding commissions and trading costs.

On July 15th, if GOLD stock closes below $19.31, the trade will start losing money on this covered call setup. Therefore, by selling this covered call option, the investor protects himself from a possible loss. In theory, the stock price could drop to $0.

As we have indicated in several articles, this covered call option would limit the potential for upside profit. The risks of not fully participating in the potential appreciation of the GOLD stock may not appeal to everyone. However, in their own risk/return profile, others may find this acceptable for the premium received.

In today’s market, making the right decisions is more difficult than ever. Think about the challenges:

  • economic inflation
  • geopolitical turmoil
  • disruptive technologies
  • high interest rates

To process it, you need good data, powerful tools to sort it out, and insight into what it means. You need to get rid of the emotions from investing and focus on the basics.

So, there’s InvestingPro+, with all the professional data and tools you need to make better investment decisions. Learn more >>

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