Barrick Gold (TSX:ABX): 2021 Could Be the Year of the Yellow Metal

Barrick Gold (TSX:ABX)(NYSE:GOLD) is a gold play well-positioned to glitter in 2021.

| More on:

The price of gold escalated throughout the pandemic last year. Each ounce is now worth US$1,840 (C$2,330) – 17% higher than a year ago and 47% higher than five years ago. 

Gold’s steady climb has coincided with the growing amount of global debt. As governments, corporations and individuals add more debt to their books, the yellow metal becomes relatively more valuable. Here’s why this pattern could push gold, and gold miners, to new heights in 2021. 

Inflation worries

Governments have borrowed an unprecedented amount to finance economic relief. In Canada, the government has deployed over $240 billion in relief programs. Since businesses were shut and Canadians were unemployed, this spending couldn’t be financed by tax revenue. Instead, it was printed by the central bank. 

The Bank of Canada has now printed so much currency, that it accounts for nearly a third of the bond market. The national debt is now 88.6% of the nation’s economic output. Other developed nations, from Australia to the United States, have similarly pushed their debt burden to record levels. 

Economists now worry that the debt could trigger inflation and reduce the value of national currencies. In this scenario, gold becomes a safe haven and the price escalates. 

Gold had a similar boost in market value during the inflation crisis of the 1970s. Double-digit annual inflation pushed the price of gold from US$35 per ounce in 1971, to a peak of US$180 in late 1974. We could be facing a similar run now. In which case, investors should consider adding exposure to gold and gold mining stocks. 

Barrick Gold stock

Barrick Gold (TSX:ABX)(NYSE:GOLD) is a gold play well-positioned to glitter in 2021, as was the case in 2020. A weaker U.S. dollar at the back of record-low interest rates should continue to support higher gold prices, making the Canadian gold play attractive, especially after the recent correction lower.

Gold price impact

At $28 a share, Barrick Gold is still undervalued given the high gold prices, which appear to have stabilized above the $1800 per ounce level. With the company on track to reach its annual gold production of between 4.6 and 6 million ounces, it remains well positioned to see an uptick in revenues.

Higher revenues and improved earnings are some of the factors likely to support the share price from the current discounted levels. Expectations of healthy revenue and margin growth in 2021 and higher production should see Barrick Gold’s free cash flow increase significantly.

Barrick Gold prospects

Barrick gold generating strong free cash flow should excite income-focused investors given that the company reported a 12.5% increase in its dividend last year. Its current 1.6% dividend yield is attractive and likely to receive a boost as free cash flows improve with a spike in gold prices.

Barrick gold is a gold play and a big player in the copper production business. Copper prices surging to seven years highs in 2020 has also presented an opportunity for the company to generate significant returns. Higher gold prices should result in a spike in Barrick gold revenues. That is ideal for enhancing free cash flow needed to support dividends.

Barrick Gold stock is already up 16% over the past year. That is comparable to the bull rally in the underlying commodity. The stock trades at a reasonable 13 times earnings per share and offers a 1.64% dividend yield. 

Conservative investors worried about the frothiness of the market should certainly add this to their watch list. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Vishesh Raisinghani owns shares of Barrick Gold.

More on Investing

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

Hourglass and stock price chart
Stock Market

It’s Not Too Late: Invest in These TSX Growth Stocks Now

Solid fundamentals of these top TSX growth stocks could help them maintain strong upward momentum in the years to come.

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

stocks climbing green bull market
Stocks for Beginners

3 TSX Stocks Soaring Higher With No Signs of Slowing

Don't ignore stocks just because they look like they're at a high price. Instead, see exactly why they've driven so…

Read more »

dividends can compound over time
Bank Stocks

Is TD Bank Stock a Buy for Its 5.2% Dividend Yield?

TD Bank stock offers a rare 5.2% dividend yield—can it rebound from challenges and reward contrarian investors? Here's what to…

Read more »

chart reflected in eyeglass lenses
Investing

How Should a Beginner Invest in Stocks? Start With This Index Fund

This Vanguard index fund is the perfect way to start a Canadian investment portfolio.

Read more »

analyze data
Bank Stocks

Is BMO Stock a Buy for its 4.7% Dividend Yield?

Bank of Montreal is up 20% since late August. Are more gains on the way?

Read more »