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Barrick Gold Corporation (USA) Stock Up 18%: Will Uncertainty Drive Gold Higher?

By Jason Hall - Jan 7, 2016 at 5:52PM

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Is this the year gold bounces back? It could be, but that's a shaky foundation for an investing thesis.

What: Shares of the world's largest gold miner, Barrick Gold Corporation (USA) (GOLD 0.33%), are on track to close up more than 10% on January 7. If that happens, it will put the company's shares up more than 18% one week into 2016, after falling by 30% last year.

Barrick Gold isn't the only precious metals miner on the rebound in 2016. Shares of Silver Wheaton Corp (USA) (WPM -0.41%) and Randgold Resources Ltd. (ADR) (NASDAQ: GOLD) are also up 5% and 6%, respectively, this year, after falling by 39% and 8%, respectively, in 2015.

ABX Chart

ABX data by YCharts.

So what: Gold prices -- represented above by the SPDR Gold Trust (ETF) (GLD -0.13%) -- are up almost 5% already in 2016, while U.S. stocks are down sharply. The Dow Jones Industrials and S&P 500 are both down around 5% after only a handful of trading days. The key factors behind the drop in U.S. stocks and the increase in the price of gold, at least so far, appears to be a lot of uncertainty, especially around China's economy. 

China's stock market fell 7% after open this morning, and trading was halted less than a half-hour into the session. During the past year, Chinese stocks are down significantly, as economic growth in the Middle Kingdom slows, and questions around how much growth remains abound. 

Now what: Precious metals miners and producers like Barrick Gold, Silver Wheaton, and RandGold certainly benefit and need precious metals prices to go higher, but it's risky to place a bet on that happening alone, especially on a thesis that counts on continued short-term market fears to turn into long-term economic weakness. The risk with Barrick and RandGold is that, by and large, they own the picks and shovels, and operate the mines, while Silver Wheaton operates in a lower-cost manner, buying by-product gold and silver from these and other miners at below-market prices by providing substantial upfront payments. 

Put it all together, and it's probably not best to invest in any of these companies with expectations that gold -- or silver in the case of Silver Wheaton -- prices will only go up from here. They may, but there's no guarantee that will happen, especially because the biggest factor behind a sharp price increase would be speculative investment, not industrial or economic demand.

Silver Wheaton may be worth a look, because its business model doesn't require metal prices to be as high to be profitable; but there are probably less-risky, higher-upside investments than precious metals producers.

Jason Hall has no position in any stocks mentioned. The Motley Fool owns shares of Silver Wheaton. (USA). 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.

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Stocks Mentioned

Wheaton Precious Metals Corp. Stock Quote
Wheaton Precious Metals Corp.
WPM
$33.79 (-0.41%) $0.14
Barrick Gold Corporation Stock Quote
Barrick Gold Corporation
GOLD
$16.73 (0.33%) $0.06
SPDR Gold Trust Stock Quote
SPDR Gold Trust
GLD
$165.50 (-0.13%) $0.21

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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