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Stay Away From Barrick Gold

Summary

ABX shares are closely correlated with gold pricing, and an improving U.S. economy means that gold prices will weaken further, creating headwinds for the company.

U.S. auto sales and unemployment rates are at very low levels, which is why the Fed is likely to increase the interest rate this month, reducing the demand for gold.

ABX is busy with asset sales as it is highly leveraged, but despite aggressive efforts toward debt reduction, its cash flow has declined and the leverage is still high.

Over the past year, gold prices in the international market have shown high volatility. Since February this year, gold prices have plummeted badly. Before that, in January, gold prices had increased rapidly because of the Swiss central bank's surprise decision to abandon the Swiss franc's cap against the euro. Since then, the decline continued throughout the first quarter of 2015 before stabilizing a bit in late March.

Then the price remained stable at around $1,200 an ounce for most of the second quarter, after which, another bout of decline took the price to $1,080 an ounce levels at the end of July.

Due to this high level of volatility in the market, Barrick Gold (NYSE:ABX) shares have dropped over 40% this year. In fact, in the last three months, Barrick has lost almost 45% of its value due to the persistent volatility in the gold market. But, of late, a recovery is seen in gold prices as shown in the following chart:


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