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An Africa Barrick Gold mine in Tanzania. Barrick, the world’s largest gold producer, could become prey for a state-owned enterprise.

Barrick

Hi Lou,

Is it good idea to buy Barrick?

Thanks.

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Kurban

Hey Kurban,

Thanks for the assignment.

Barrick Gold Corporation is the world's biggest gold producer and has been caught in the grips of declining prices for gold, silver, and copper. The copper cut was the deepest. In 2011 ABX paid $7.3-billion to acquire Equinox Minerals and gain control of the Lumwana mine in Zambia. Unfortunately a retreat in the price of copper and disappointing drilling results forced the company to write down $3.8-billion on the acquisition. The deal cost Aaron Regent his position at the head of the company and now new management is committed to growing profits not production.

Your question makes it clear that you are looking to do some bottom fishing which can prove problematic if you anticipate the bottom instead of confirming it. The charts will help determine if now is a good time to buy ABX.

The three-year chart for gold informs the seasoned investor that the price of the underlying commodity hit the highs in the summer of 2011. When the price of what a company makes is in a retreat it doesn't bode well for the stock price.

The three-year chart for Barrick indicates that the stock has taken a deeper slide than gold itself. Gold is off 16 per cent from the highs while ABX is down 40.7 per cent. There is support at $30.00 which could indicate a buying opportunity is developing. But we would want to have other indicators support a decision to buy.

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The six-month chart depicts the resistance along the 200- and the 50-day moving averages that have stopped every attempt to reverse the downtrend. In addition the MACD and the RSI are not supporting a buy decision at this time. If you are bound and determined to get on this ride the best approach would be to chip away at it. Instead of going all-in, take a small position and then add to it on an advance. If ABX can't hold on to $30.00 then it may have to retest $20.00.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it to lschizas@globeandmail.com.

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