How far could he go?
Barrel gold (TSX: ABX) (NYSE: GOLD) has taken a good tailwind over the past two months. Investors who missed the rebound want to know if this is the start of another extended rally for the stock.
Bond market and gold price
Gold fell from US $ 2,080 last August to less than US $ 1,700 in early March. This turned out to be the recent low, and gold is now at a three-month high near US $ 1,850 an ounce.
Analysts say the US Treasury market is the main reason for gold’s surge last summer and the massive sell-offs that followed. 10-year cash fell to 0.051% amid a frenzy of bond buying in the early months of the pandemic. Bond yields move in the opposite direction to bond prices. When yields fall, gold tends to find favor. The reduced yield reduces the opportunity cost of holding gold, which does not pay interest or dividends.
Between August 4, 2020 and March 31, 2021, the 10-year yield rose to 1.75%. A quick glance at the price of gold shows a steady decline that has generally followed the decline in the bond market. At the time of this writing, the 10 year yield is approximately 1.64%. A jump in the Treasury yield towards 2% could put further pressure on gold, while a return towards 1% should be positive for gold prices.
Bitcoin and gold
Another factor to consider is the crypto market. Bitcoin and other cryptocurrencies soared in the first part of 2021. Experts speculate that silver came out of gold to bet on the Bitcoin rally. The extent of the impact is unknown, but the recent fall in the crypto market could fuel the rebound in gold as traders book profits in Bitcoin and shift funds to the yellow metal.
If cryptocurrencies collapse in the next few months, gold could soar.
Is Barrick Gold cheap stock?
Barrick Gold is trading at almost $ 29 per share at the time of writing. The stock price hit $ 40 at its 2020 high and fell below $ 24 in late February. The company’s balance sheet is doing well. Barrick Gold ended 2020 with zero net debt. With significant excess cash to deploy, the board of directors announced a special capital repayment of US $ 750 million to shareholders. This is approximately US $ 0.42 per share that will be paid this year in addition to the annualized dividend of US $ 0.36.
Barrick Gold owns five of the top 10 gold mines on the planet and is developing another to join the group. In the first quarter 2021 report, Barrick said it was on track to meet its production targets for the year. The company is also working on a number of ESG initiatives.
All-inclusive sustaining costs were US $ 1,018 per ounce in the first quarter. Assuming gold stays near current levels, Barrick Gold is expected to generate significant profits in 2021.
The company is also getting a boost from its copper business. Barrick Gold is not widely known as a copper deposit, but the market could miss the upside potential of the copper rally. The base metal recently hit US $ 4.75 per pound, down from US $ 2 per pound at its 2020 low.
Barrick Gold has the potential to be a free cash flow machine, and investors are already reaping the rewards through higher payouts. If you think the price of gold will hold its current level or rise over the next couple of years, Barrick Gold stock looks undervalued today.
The Barrick Gold Stock article: How far could it go? first appeared on The Motley Fool Canada.
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Foolish contributor Andrew Walker has no position in any of the stocks mentioned.
2021