Barrick Gold Corp. (NYSE: ABX)
Barrick Gold closed the week off in a rough way this week, and for good reason. Recent comments made by a key member of the Federal Reserve have led to opinions that September may be the month for a rate hike. Today, we’ll talk about those recent comments, what this has to do with the stock, what we saw in the market as a result, and what we can expect to see from ABX ahead.
Federal Reserve President Comments Send ABX Spiraling Downward
As mentioned above, Barrick Gold had an incredibly rough day in the market on Friday, after comments made by a key member of the Federal Reserve led to expectations that the interest rate will increase this month. That member is Eric Rosengren. Rosengren is the President of the Boston Federal Reserve Bank. He is also a voting member on the federal monetary policy committee, so he plays a big role in the decision with regard to increasing interest rates. In a recent statement, he had the following to offer:
“If we want to ensure that we remain at full employment, gradual tightening is likely to be appropriate… A failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery.”
What Does This Have To Do With Barrick Gold?
At first glance, it may seem as though the comment made by Rosengren has nothing to do with ABX, but that notion couldn’t be further from the truth. At the end of the day, this is a very important story for investors in this stock.
The reason this is so important for ABX has to do with the company’s core product. As its name would suggest, Barrick Gold focuses on the mining and sales of gold. So naturally, the company is at the whim of spot prices.
The news with regard to the Federal Reserve is big news when it comes to gold’s spot price. At the end of the day, if the Fed does increase its interest rate, it will essentially be adding value to the USD. In doing so, commodities like gold that are priced using the USD would become more expensive around the world thanks to currency exchange rates. In return, this would lead to global weakening of demand and, ultimately, lower prices for gold. When gold is trading low, ABX sees lower revenue from its flagship product, so this story is about as important as they get for Barrick Gold investors.
What We Saw In The Market
As you could imagine, hawkish statements that lead to opinions that the Fed will increase its rate are not good for ABX in any way. So naturally, the stock had a rough day on Friday following Rosengren’s statements. By the end of the day, the stock had fallen to $17.53 per share after a loss of $0.90 per share (4.88%). In after-hours trading, the stock is up slightly, trading at $17.55 per share after a gain of $0.02 per share (0.11%).
What We Can Expect To See Moving Forward
Moving forward, I have a relatively mixed opinion of what we can expect to see from Barrick Gold. At the end of the day, the stock is going to follow gold’s value. With that said, in the short term and with everything associated with the Federal Reserve in mind, I’m expecting to see increased volatility. However, if the Fed does raise its rate, it is going to be a very small increase, and I don’t think it would have quite the affect on the market that investors are preparing for. So, in the medium to long term, things are still looking good for ABX!
[Image Courtesy of Wikimedia]