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ITPM Jason McDonald’s Insight on Barrick Gold and Geopolitics
Gold’s status as a “safe haven” asset has been undeniable during times of uncertainty, but as Jason McDonald, Senior Trading Mentor at the Institute of Trading and Portfolio Management (ITPM), pointed out in his recent Flash Episode 63, this could be about to change. Jason presented a short trade idea focusing on Barrick Gold (Ticker: GOLD), leveraging the potential for declining gold prices in 2025.
Let’s unpack Jason’s insights and why this trade idea is worth paying attention to.
The Global Conflict Backdrop: Peace on the Horizon?
Gold prices tend to rise during times of geopolitical tension, inflation, and market volatility. In recent years, the Russia-Ukraine war and inflationary pressures have driven gold prices higher as investors sought refuge in this antifragile asset.
However, as Jason McDonald notes, there are signs that geopolitical tensions may ease in 2025. The incoming Trump administration has signaled its intent to negotiate a peace deal in the Russia-Ukraine conflict. European leaders and Ukrainian officials also appear to be aligning with this new reality, signaling a growing acceptance that peace talks are inevitable.
Jason highlights a critical question: What happens to gold prices if geopolitical risks begin to ease?
The answer lies in the "war premium" baked into gold prices. If a resolution is reached in early 2025, the safe-haven demand for gold could drop significantly, leading to a sharp decline in prices. For gold miners like Barrick Gold, this could spell trouble.
Barrick Gold: A Proxy for Gold’s Performance
Barrick Gold is one of the largest gold and copper producers in the world, with mines across Africa, Latin America, Canada, and the U.S. As a major player in the gold mining industry, Barrick’s stock price is closely tied to the performance of gold itself.
In Flash Episode 63, Jason McDonald emphasized the following points about Barrick Gold:
Dependence on Gold Prices: Analysts’ forward earnings estimates for Barrick are built on the assumption of strong and stable gold prices. If gold prices drop due to geopolitical de-escalation, these estimates could be revised downward, pressuring Barrick’s stock.
Overcrowded Gold Trade: Both retail and professional investors have heavily favoured gold as a long position in recent years. This crowded trade leaves the market vulnerable to sharp corrections if sentiment shifts.
Upcoming Earnings: Barrick’s next earnings report is expected in February 2025. If the company underperforms due to declining gold prices, this could add fuel to the bearish case.
Ticker "GOLD" stock price has been fluctuating heavily since 2023.
The Role of Inflation and Market Sentiment
Jason McDonald also touched on how inflation ties into the broader narrative. Inflation has been one of the primary drivers of gold’s recent rally, as investors used the metal to hedge against eroding purchasing power. However, inflationary pressures may ease as central banks continue their tightening policies into 2025.
Additionally, the consensus bullish positioning in gold could unwind quickly. Markets are forward-looking, and any hint of easing inflation or geopolitical tensions could lead to a rapid rotation out of gold and into other asset classes.
Jason’s argument underscores this potential shift: Gold prices may drop not because of current data, but because of what markets expect in the near future.
A Hedge Against Peace?
One of the most interesting aspects of Jason McDonald’s short trade idea is that it’s counterintuitive. Most traders think of hedges as protection against risk or uncertainty. This trade, however, acts as a hedge against geopolitical stability and peace.
If the Russia-Ukraine war de-escalates and inflation cools, gold could lose its luster as the ultimate safe-haven asset. This creates an opportunity for traders to profit from declining gold prices and, by extension, falling gold mining stocks like Barrick Gold.
Jason describes this idea as a “global conflict de-escalation hedge”—a unique way to position for a world where peace and stability lower the value of safe-haven assets.
Key Takeaways from Flash Episode 63
Here’s what we learned from Jason McDonald’s analysis in his recent episode:
Gold’s "War Premium" May Disappear: If peace talks between Russia and Ukraine gain traction, the geopolitical risk premium currently propping up gold prices could collapse.
Barrick Gold is a Key Player to Watch: As a major gold producer, Barrick Gold’s fortunes are tied to the performance of gold itself. Any significant drop in gold prices could hit Barrick’s stock hard.
Market Sentiment Could Shift Rapidly: With gold as a consensus long position, any shift in sentiment—driven by peace, inflation, or stronger risk-on sentiment—could trigger an unwinding of positions, amplifying the downside move.
Food for Thought: Positioning for Change
Gold has been a reliable safe-haven asset during times of crisis, but markets don’t stand still. Jason McDonald’s short trade idea on Barrick Gold serves as a reminder that traders must remain nimble and forward-looking.
As 2025 approaches, the possibility of geopolitical de-escalation and easing inflationary pressures could shift the dynamics of the gold market.
Disclaimer:
The information provided in this article is for general informational purposes only. It is not intended to be financial advice and should not be construed as such. Always consult with a qualified financial advisor before making any investment decisions. The author and publisher are not liable for any financial losses or damages that may result from the use of this information.
This article summarizes the content of ITPM Flash Episode 63, published on December 6, 2024. The information provided is sourced externally and does not represent the opinions of The Institute Trader, nor should it be considered financial advice or a recommendation to take any trading positions