Skip to main content
sean silcoff

ROB Insight is a premium commentary product offering rapid analysis of business and economic news, corporate strategy and policy, published throughout the business day. Visit the ROB Insight homepage for analysis available only to subscribers.

Things aren't getting any easier for Barrick Gold Inc. In the past year the company has replaced its CEO, taken massive writedowns to expensive projects and encountered delays to its Pascua Lama project in South America. It was shaken down to the tune of $1.5-billion in additional future payments by the government of the Dominican Republic this spring, just months after bringing its low-cost mine there into commercial production. Governments aren't the only ones after Barrick: shareholders let the company know they were outraged by excessive payments to executives at the annual meeting in April.

Now, with the price of gold tumbling further, Barrick has confirmed it is laying off 30 per cent of its bloated corporate office staff. Barrick's stock may be at two-decade lows, but things will likely get worse before they get better.

Despite a wave of writedowns across the mining industry in the past 18 months, there's fresh talk of more to come if gold prices remain at depressed levels.

The near to medium-term prospect for gold prices isn't good. Gold bugs have held out that the precious metal is a sure bet as central banks pump trillions into the global economy, but there are two problems with that view: inflation – against which gold typically acts as a hedge – is nowhere in sight. Even renowned gold fan Don Coxe has capitulated, cutting exposure in the funds he advises, saying there's little reason to own more while gold takes a "pause."

But another factor at play could be simple supply-demand dynamics. It's hard to believe the price of gold, given its lack of any intrinsic value, could actually be linked to anything as real as market forces, but Amit Bhartia and Matt Seto of fund manager GMO LLC make a convincing case there has been a strong correlation since 2000 between the price of gold and consumer demand from emerging economies, which accounted for 79 per cent of total demand in 2000s. The last time demand from Asia plummeted, during the crisis in 1997-98, the price of gold tumbled by 25 per cent. The latest weakness follows a deterioration of demand from China and India last year, and "if China gold demand were to slow, the impact on gold prices would likely be significant," they write. "Given both the cyclical and structural challenges the Chinese and Indian economies are facing, we believe the risks to gold prices today are particularly high."

There's really only one way for an out-of-favour gold mining company to act in this environment, and that is to batten down the hatches. As a gold miner, you want to be the low-cost producer, with the best management and the properties in the most predictable jurisdictions. Barrick is trying to head in that direction but it has made some big mistakes in recent years, including waiting too long to eliminate its gold hedging program, as well as pursuing growth at all costs with exorbitantly priced acquisitions. The firm now finds itself trying to catch up to better-positioned and managed rivals such as New Gold Inc. or Yamana Gold Inc. They focused on being the best, rather than the biggest – which was Barrick's aim for far too long. Getting smaller is the right way to go, and smaller still if gold prices continue to deteriorate.

Sean Silcoff is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow him on Twitter at @seansilcoff .

The Globe has launched a Streetwise and ROB Insight newsletter, with content available exclusively to Globe Unlimited subscribers. Get the best of our exclusive insight and analysis delivered straight to your inbox in a daily e-mail curated by our editors. Sign up for it and other newsletters on our newsletters and alerts page .

Report an editorial error

Report a technical issue

Editorial code of conduct

Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 1:01pm EDT.

SymbolName% changeLast
ABX-T
Barrick Gold Corp
+2.27%22.49
BX-N
Blackstone Inc
+0.1%131.02
K-T
Kinross Gold Corp
+3.75%8.3
KGC-N
Kinross Gold Corp
+4.25%6.13
NGD-A
New Gold Inc
+0.59%1.7
NGD-T
New Gold Inc
+0.44%2.3
X-N
United States Steel Corp
+0.1%41.06

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe