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Stocks and bonds have hit a rough patch in January, stoking demand for haven investments that will provide an offsetting lift. Unfortunately, gold isn’t stepping up, raising some uncertainty about the case for investing in Barrick Gold Corp. ABX-T

In a number of ways, gold enthusiasts are seeing ideal underlying conditions for the precious metal.

For one, anyone who believes that gold offers an inflation-proof store of value should be cheering recent inflation numbers. In the United States, the consumer price index soared close to a 40-year high of 7 per cent in December.

“This isn’t just a food and energy story, nor is it a base-effects story. It’s simply a raging inflation story,” Sal Guatieri, senior economist at BMO Capital Markets, said in a note last week.

For another, equity markets have turned volatile, underscoring a need for safe bets. The Nasdaq Composite Index has declined 15 per cent from its high in November, putting the tech-heavy index into correction territory. Even the more diversified S&P 500 has declined to three-month lows, with turmoil spreading to stock markets in Canada, Europe and Asia.

Once-hot SPACs, or special-purpose acquisition companies that prowl for takeover opportunities, are now stone cold. Bitcoin has fallen about 20 per cent over the past month.

And government bond prices have been declining – sending yields higher – as the U.S. Federal Reserve, the Bank of Canada and other central banks prepare to raise their key interest rates this year.

There’s even geopolitical turmoil emerging as a menacing backdrop, as Russia prepares to invade Ukraine and the United States threatens severe economic sanctions if it does.

All of which should put gold in a sweet spot.

But the commodity hasn’t been doing much during this mayhem. Since the start of 2022, gold has risen less than US$2 an ounce, or about 0.1 per cent, to US$1,831.80 on Friday. That’s hardly the sort of move that gives bragging rights to gold enthusiasts.

Worse, the price has fallen by about US$40 an ounce from a recent high in mid-November. Over the past year – as threats of inflation began to appear – gold has trailed economically sensitive commodities such as crude oil and copper.

Are gold stocks doing any better?

Barrick Gold (ABX-T) rallied 3.8 per cent this week, even as the S&P/TSX Composite Index slumped 3.5 per cent over the same period, which is promising for haven-seeking investors.

But the one-day gain of 8.5 per cent on Wednesday, which then subsided as the week wore on, had little to do with a reaction to inflation or market volatility. Instead, the stock price jumped after Barrick announced that gold production in the fourth quarter rose by 10 per cent from the third quarter, to 1.2 million ounces.

That exceeded some analysts’ estimates, and it came with other good news. Barrick hit its production guideline for 2021; and the company expects that its all-in sustaining costs – or AISC, a mining metric that gives investors an understanding of how much it costs to produce each ounce of gold, on average – will decline 4 per cent to 6 per cent from the third quarter.

That could provide a nice tailwind, given that costs among global producers soared last year. According to the World Gold Council, AISC increased by an average of 16 per cent in the third quarter, year over year, because of inflationary pressures on the cost of labour and fuel.

If Barrick can produce gold more cheaply – and more of it – the bullish case for the stock is quite persuasive.

But the price of gold may have to play along for investors to get excited about the stock.

This week, Barrick outperformed SPDR Gold Shares (GLD-A), an exchange-traded fund that offers an easy way for investors to gain access to physical gold. But the gold producer has lagged the gold ETF by about 20 percentage points over the past year.

If gold is struggling under ideal conditions right now, the case for Barrick looks far from clear.

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