If you are seeing Barrick Gold Corporation (USA) (NYSE:ABX) shares sliding and can’t figure out what’s happening, here is what you should know. The stock was this week dropped by Goldman Sachs from its Conviction Buy list. On top of that, speculation that the European Central Bank (ECB) could start to cool its bond buying activity has hit many gold stocks with no exception of Barrick.
What Goldman thinks of Barrick
After reassessing what lies ahead of Barrick Gold Corporation (USA) (NYSE:ABX), Goldman analysts came to the conclusion that the stock is not worth a place in their Conviction Buy list. Although Goldman maintains BUY rating on Barrick stock, the removal of the stock from Conviction Buy list is a downgrade move.
As such, the ouster of Barrick from Goldman’s Conviction Buy list has severely impacted investor sentiment on the stock and that explains the selloff.
According to Goldman, macro headwinds have increased for Barrick. Nevertheless, Goldman remains bullish on Barrick primarily because it believes the company’s hasn’t tempered its investment thesis.
Goldman has a price target of $27 on Barrick stock. Shares of Barrick are currently changing hands in the vicinity of $15.
Is ECB about to throttle easing?
Speculation that ECB might begin cutting its monetary easing activities rattled gold stock and Barrick hasn’t been spared. The reaction is based on the fear that when interest rates begin to rise, investors will lose appetite for safe-haven assets such as gold as they turn to risk assets that bear yields. Furthermore, curtailing bond buying by ECB threatens to cut the supply of easy money that has been supporting gold trade. As such, gold prices will begin to slide and gold miners such as ABX will see their profit margins shrink.
However, minutes of ECB governing council meeting show that support for continued easing remains popular as it has been important in underpinning economic growth in the Eurozone.
Resumption of mining in Argentina
News of Barrick stock downgrade at Goldman and rumors of possible throttling of easing in the Eurozone have swallowed news a recent positive development for Barrick. The company said that it has resumed mining at its Argentinian Veladero mine. The company is targeting production of between 5 and 5.5 million ounces of gold for the year.