How Warren Buffett Is Backing Gold

How Warren Buffett Is Backing Gold

over 3 years ago2 mins

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The latest twist in a glittering few months for the price of gold has seen billionaire Warren Buffett’s investment company buy $600 million worth of shares in one major miner – but the smart money may be backing a decidedly less flashy metal 🥉

What does this mean?

Buffett has spent his career sneering at investors in gold, given its inability to generate returns beyond mere price movement. But he was famously sniffy about tech stocks too. And the man who today owns more Apple stock than anyone has now – via his publicly investable Berkshire Hathaway conglomerate – pulled another about-face.

A regulatory filing released late last week reveals that Berkshire, while trimming its stakes in many big US banks, has amassed around 1% of Barrick Gold – one of the world’s largest miners of the metal. The news sent Barrick’s share price up over 11% on Monday; the price of gold itself, after falling slightly from record highs earlier this month, is also back on the up.

Gold's per-ounce price is once more above $2,000 (Source: Markets Insider)
Gold's per-ounce price is once more above $2,000 (Source: Markets Insider)

Gold is famously seen as a safe haven during times of financial stress, but commodities markets are sending mixed signals. According to hedge fund Man Group, an equal risk-adjusted investment in gold and copper has delivered some of its highest returns ever recently. Copper’s many industrial uses mean its price goes up when economic expansion is imminent – so investors may be exhibiting both fear and FOMO… 😅

Why should I care?

As miners’ share prices typically move in tandem with that of their main product, Buffett appears to believe gold will head even higher thanks to concerns over coronavirus and the US economy’s response. In fact, years of cost-cutting in the sector combined with lower energy prices may make miners’ stocks (available in bulk via NYSE Arca Gold Miners index) an even better investment than gold itself.

Berkshire’s simultaneous dumping of bank stocks – with the exception of the “cheap”-looking Bank of Americasuggests it may also be concerned about an eventual pickup in inflation, given the amount of low-interest cash currently sloshing around 🤑

Interestingly, copper and gold tend to both perform strongly during periods where inflation is high and rising. The unusual state of affairs at present may therefore lend weight to the notion that decades of “disinflation” are finally about to end…

Previous peaks align with spikes in the US inflation rate (Source: Man Group)
Previous peaks align with spikes in the US inflation rate (Source: Man Group)
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