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Wednesday, February 21, 2024

Top Trade Alert – Feb 7 2024 – Barrick Gold (GOLD)

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Top Trade Alert – Feb 7 2024 – Barrick Gold (GOLD)

Dollar back at 104 from 104.5 yesterday so that’s helping to boost things.

I still think 5,000 isn’t going to break but we hit 4,999.25 on the futures just now so we’ll see.

Oil $73.50 again – too scary to short and EIA in 30 mins. /NGG failing $1.99 as Biden’s hold on new exports traps /NG in the US (glut).

Gold blasting back to $2,060, Silver $22.50, Copper $3.76 yet GOLD is back at $15.

Finviz Chart

Finviz Chart

Earnings are on the 14th and GLD (Gold ETF) was down at $150 last year in Q4 and this year $190 is up $40 (26.66%). Here’s the outlook:

Barrick (GOLD) said FY 2023 gold output fell 2.1% from the prior year to 4.05M oz, below its annual guidance range of 4.2M-4.6M oz and analysts’ average estimate of 4.16M oz, due to equipment issues at its Dominican Republic mine and lower output at two sites in the Nevada Gold Fields project.

Full-year copper production fell 4.7% to 420M lbs, at the low end of guidance for production of 420M-470M lbs and below 433M lbs analyst consensus estimate.

Barrick’s (GOLD) Q4 production edged higher to 1.05M oz of gold and 113M lbs of copper from 1.04M oz of gold and 112M lbs of copper in Q3, but analysts had forecast Q3 gold output of ~1.1M oz.

The company also said it expects Q4 all-in sustaining costs per gold oz will rise 8%-10% while copper’s AISC is seen coming in 2%-4% lower per lb than Q3.

🤓 As for the Q4 forecast, Barrick Gold expects to deliver on its full year guidance of 4.0 to 4.4 million ounces of gold production at an all-in sustaining cost of $970 to $1,020 per ounce3. However, some of the challenges and risks that may affect its Q4 performance are:

Overall, I still like the play as a long-term investment and certainly it’s a great hedge against inflation. A terrible Q3 still dropped $330M to the bottom line so 4 of those would be $1.3Bn and you can buy the whole company for $26Bn so 20x based on a really bad Q but more likely they make $2Bn and it’s 13x and still a great inflation hedge as $2,100 gold would push them below 10x.

We already have plays on GOLD but, as a new trade, I’d go with:

  • Sell 10 GOLD 2026 $17 puts for $3.50 ($3,500)
  • Buy 20 GOLD 2026 $13 calls for $3.80 ($7,600)
  • Sell 20 GOLD 2026 $17 calls for $2.10 ($4,200)

That’s a net $100 credit on the $8,000 spread so there’s $8,100 (8,100%) upside potential at $17 in two years. Worst case is you own 1,000 shares at $17 but if that were the case today – we could sell 2026 $15 calls for $2.80 and $13 puts for $1.45 and that would drop our net to $12.75 and I certainly don’t consider that a bad worst case – and that’s without even rolling the short puts lower!