Insights

Why Barrick Gold Stock Fell 11% in July

What happened

Falling 5.6% through the first half of 2022, shares of Barrick Gold (NYSE: GOLD) began the second half of the year on a similarly lackluster note. While the S&P 500 bounded 9.1% higher last month, Barrick’s stock tumbled 11%, according to data from S&P Global Market Intelligence.

Besides the declining market price of gold, the company’s preliminary second-quarter results and bearish attention from Wall Street motivated investors to sell shares in July.

So what

After declining more than 6% through the first two weeks of July, the price of gold bounced higher in the second half of the month, resulting in it only falling about 3.5%. There’s a strong correlation between the movements in the prices of commodities and the stocks of companies that deal in them, so the slide of Barrick’s stock was likely expected by those who follow the precious metal.

The more-material issue affecting investors’ sentiment, however, was Barrick’s preview of its second-quarter earnings announcement. On July 14, the company reported preliminary second-quarter 2022 sales figures and affirmed its 2022 gold and copper forecasts. That was the good news.

Less auspicious, for investors, was the news that costs in the quarter crept up compared to the first quarter. According to management, Barrick will report all-in sustaining costs (AISC) per gold ounce that are 3% to 5% higher on a quarter-over-quarter basis when it reports on the second quarter.

Lastly, analysts revealing negative outlooks on the stock represented an additional catalyst for its decline. On July 19, Matthew Murphy, an analyst at Barclays, reduced the price target on Barrick’s stock to $25 from $28. According to Thefly.com, Murphy based the price target cut, in part, on the belief that Barrick will continue to face pressure on its margins.

Now what

In light of its expansive global operations and the rising energy costs that are plaguing many companies, it’s not surprising that Barrick expects AISC to rise in the second quarter. It’s important for gold bugs to remember, however, that rising fuel costs and downswings in the price of the metal are part and parcel of investing in gold stocks. It’ll be most insightful to see the specific numbers on Aug. 8 when the miner reports for its second quarter.

As for the analyst’s price target reduction, this shouldn’t be seen as a major factor in whether investors choose Barrick to add some luster to their portfolios or not. It is one of the largest publicly traded gold stocks available to investors, so it is worth consideration by precious-metals investors, and nothing that happened in July changes that.

Scott Levine has no position in any of the stocks mentioned. The Motley Fool recommends Barclays. The Motley Fool has a disclosure policy.

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