Barrick Gold About To Break Out To New Yearly Highs?

When news broke on August 17th that investment legend Warren Buffett's Berkshire Hathaway had taken a position of a little greater than half a billion USD in Barrick Gold, Barrick Gold's stock (ABX) rose more than 10%.

Shortly afterwards, it hit its current yearly high at 31.22 USD per share and, since then, has consolidated between 26.50/27.00 and 30.00 USD.

Given the bullish outlook for Gold, the outlook for Barrick Gold remains positive, as well – with some serious upside potential.

Buffet's Berkshire Hathaway builds a small position in ABX – why?

First of all, it seems worth shining a light on Berkshire Hathaway's investment:

An investment in a Gold mining company alone is noteworthy for a company whose CEO is not known to be very positive on Gold (Buffett is known to favour investments in assets which produce cash flow and, respectively, pay dividends).

However, it should be noted that an investment of 0.5 billion USD is quite small in comparison to Berkshire's long position in Apple, for example, for more than 89 billion USD worth of stock.

That said, it seems likely that one of Buffett's investing lieutenants, Ted Weschler or Todd Combs, is responsible for the purchase.

With this in mind, consider the following:

• There has been a reduction of Berkshire's holdings in US banks (such as Wells Fargo, Goldman Sachs and JP Morgan),
• Buffett and Berkshire's position for a US economic downturn go hand in hand with low US yields

Thus, one can conclude that this is currently an advantageous environment for precious metals like Gold.

Scepticism of the US economy was underlined again last week with the "mixed" jobs report last Friday which showed a falling unemployment rate to 7.9%, but also illustrated that out of more than 22 million jobs lost in March and April due to the Corona lockdown only around 11.3 million so far have been recovered.

That leaves no other possibility than to see the Fed balloon its balance sheet again in the near future, financing the needed Corona relief package which Democrats and Republicans need to deliver, and levelling the path for a run to substantially higher than 2,000 USD in Gold.

In addition:

• The world's top Gold miners reassured investors at the Gold Forum Americas conference that they're not planning on going on a spending spree despite the latest rise in Gold prices, and seem to be returning more profits back to their shareholders (paying higher dividends)
• We expect a further rise in Gold prices in the near- and mid-term

As such, mining stocks like Barrick Gold could be in for another bullish stint after already performing extraordinarily well in 2020 (~ +60% YTD).

How to trade Barrick Gold/ABX in this environment

Looking at the bullish consolidation between 26.50/27.00 and 30.00 USD makes buying a bullish break to new yearly highs above 31.22 USD with a stop around 26.00 USD interesting.

A potential target for Barrick Gold on the upside, especially if the Gold price surges to above 2,000 USD and goes for a run up to 3,000 USD in the next 18 – 24 months, could be found at around 55 USD, the current All-Time High it marked in 2011:

(Click on image to enlarge)

Source: Admiral Markets MT5 with MT5SE Add-on #ABX Daily chart (between May 10, 2019, to October 07, 2020). Accessed: October 07, 2020, at 07:30 AM GMT. Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, ABX fell by 31.25%, in 2016, it increased by 116.53%, in 2017, it fell by 9.45%, in 2018, it fell by -6.43%, and in 2019, it increased by 37.30%, meaning that in five years, it was up by 77.5%.