LAWRIE WILLIAMS: A topsy-turvy week for gold and silver
Gold, followed by silver, has had an extremely volatile week. On Monday/Tuesday the price regained the $2,000 level, as we had suggested, having been given the boost from Warren Buffet’s Berkshire Hathaway purchase over Q2 of some 20.9 million shares in Barrick Gold (ticker GOLD) despite Buffett being an adamant gold naysayer in the past. There were some rather misleading comments in the media on this. Buying GOLD, the share (Barrick’s ticker on the NYSE was inherited following its merger with Randgold Resources) is not the same thing as buying gold the metal, although the two are obviously directly connected.
Barrick is a dividend paying gold mining giant (the world’s No. 2 gold miner) which will be raking in enormous profits at present given it can mine gold at about half the metal’s current price. It is probably thus on track for further dividend increases while many general equities are struggling to make any kind of profit to say the least while the coronavirus continues to have an adverse effect on the overall economy. And this effect is likely to persist well into 2021, if not for much longer, should a second virus wave strike as the northern winter approaches.
Thus the Barrick stock purchase, coupled with the unloading of Berkshire Hathaway’s airline stocks and much of its remaining banking equities, would seem to be a wise commercial move for the investment conglomerate, whatever Warren Buffett thinks about gold the metal. The two positions are not incompatible.
The U.S. investor (both individual and through hedge funds) seems to be in the words of the South Pacific song, a ‘cockeyed optimist’, but it is notable that some of the nation’s most successful individual investors have been sitting the current equities boom out. Sooner or later equities will undoubtedly crash. The recent rises for most stocks are built on hype and sand. Profits have been decimated, or turned into losses, bankruptcies are hugely in evidence and there’s yet no end in sight to the virus’s deleterious effects on the economy. Investors clutch at straws – as an example the reports of a Russian vaccine had a positive effect on equities and were negative for gold and silver. No matter that the likelihood of this vaccine, even if it works, becoming available in the U.S, inside 12 months or so, is very unlikely given the regulatory hoops it would have to go through before it might become generally available.
The knockback this week came after the release of a fairly innocuous set of minutes from the last Fed meeting. This was probably more notable for what was not included rather than any specifically equity-boosting, or gold-knocking content.
Gold and silver probably had risen too far too fast at the end of July and in the first couple of weeks of the current month, making a correction almost inevitable, and when it happened it was likely overdone. The precious metals will probably consolidate at, or around, current levels and perhaps resume their upwards path in the fall. We do expect $2,000 gold and $29 silver will be regained – but perhaps not retained – this side of Christmas, but should be a permanent feature from early 2021.