Barrick Ready to Profit from a Gold Rush

cris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A rise or fall in the price of gold stocks is usually determined to a certain degree by the price of gold in the market and the events particular to individual stocks. Given the fact that Barrick Gold (NYSE: ABX) is not making the news for any events that have much potential to affect it, inferences about its direction can be based on the market conditions currently affecting the price of gold. Important market conditions influencing the price of gold include the differences in supply and demand.

It is a well-known fact that the fortune of gold investors is technically tied to the economy of the world, with the greatest focus being placed on the U.S economy. Furthermore, there is an inverse relationship between the U.S dollar and the price of gold, so Barrrick Gold stock may fall if the U.S dollar should rise. Unfortunately, the U.S dollar is rising to the detriment of gold. The mere fact that gold is indexed above 82.5 is enough to indicate negative results for gold stocks.

Gold is presently volatile, however, because of the economic conditions prevailing in Europe. It would be myopic to base my arguments for the direction of gold stocks on the U.S dollar while ignoring the effect of the European economy on gold. In a bid to avoid being so narrow-minded, now may be a good time to examine the relationship between the European economy and gold stocks like Barrick Gold. In essence, the prices of gold will stabilize only after a similar stability has been achieved in the eurozone. With the fact that the fate of Europe lies in the hands of politicians, however, it is hard to know when such stability will become a reality instead of a dream.

The high demand for gold in China is one more condition that may have a large impact on the price of gold. Therefore, it is not surprising that the demand for gold in China has jumped by as much as 51% in the past year. The present increase in the Chinese demand for gold can be linked to the problems facing Europe, especially with Greece and Spain embroiled in messy financial situations.

In an interview with King World news, Richard O'Brien, the CEO of Newmont Mining (NYSE: NEM) shared, "I think China is quietly trying to do everything they can to assemble a bigger gold portfolio." He went on to say, "Obviously China is now both the world's largest producer of gold as well as the largest consumer of gold. Not one ounce shows up as legally leaving China. I think that's a strong statement that the Chinese people and the Chinese government are looking to hold on to and expand their holdings of gold over time."

Newmont Mining is also in other news for its plans to effect a reduction in the amount of money that it will spend on its mine project in Peru. In fact, news sources indicate that the reduction is necessary in order to accommodate the delaying tactics of the Peruvian government. It may also be necessary for the company to handle the issues arising about environmental concerns with the mine. It was reported that Newmont has plans to invest $440 million in the mine, as opposed to the $1.5 billion that was earmarked for the project. Newmont Mining may even have to discontinue the work on the mine, as there have been local protests about the proposed replacements of the natural Peruvian Alpine lakes with artificial bodies of water.

In other the news for another competitor, AngloGold Ashanti (NYSE: AU) is set to acquire the 50% interest of Kinross Gold (NYSE: KGC) in Brazil's Crixas gold mine. The acquisition will see Kinross ceding all its right to the mine to AngloGold Ashanti, and as a result, AngloGold Ashanti will be the full owner of the Crixas mine. It was reported that Kinross is trying to keep its focus centered on its core assets while getting rid of the non-core assets. From this deal, one can infer that AngloGold Ashanti is set to make very good money if the price of gold should rise, especially given the fact that the mine is expected to yield about 70,000 ounces of gold during this year alone. If the price of gold should fall, however, I need to mention that Kinross has made a smart move in selling the mine to AngloGold Ashanti. If this happens, it may become the case that AngloGold Ashanti has purchased little more than a highly priced paperweight for $200 million.

Not all is doomed for gold stocks, however, as the recent news regarding Goldcorp (NYSE: GG) will surely see it rising significantly, irrespective of the market conditions. I believe this will happen because Goldcorp recently received a positive review in Fitch ratings for a job well done. It may interest you to know that Goldcorp's issuer Default Rating is still maintained at "BBB," and its rating outlook has been set at stable. This positive news is despite the fact that most gold stocks in the market are suffering from the volatility of gold, which is continuing to be caused by the uncertainties in Europe.

I believe Barrick Gold will stay pretty stable, at least for the time being. Any increase or decrease in its price will most likely be caused by the prevailing market conditions, but these are likely to affect all other gold stocks in the same manner, although to different degrees. Therefore, I believe Barrick Gold will stay competitive in the industry, but I would also advise investors to closely watch the price of gold, as it may eventually bring about significant results for gold stocks as a whole.

jewishitalian31 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

blog comments powered by Disqus