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LAWRIE WILLIAMS: Warren Buffett Buys GOLD

Perhaps the above title could be seen as misleading.  The GOLD in the title does not refer to gold bullion, but to Barrick Gold’s stock which retained the old Randgold Resources GOLD ticker after the two companies merged a little over a year and a half ago.  Even so it does represent a departure from Warren Buffett and Berkshire Hathaway’s rather disparaging dismissal of gold and gold stocks as a suitable investment asset for what is probably America’s most successful investment conglomerate.

In Berkshire Hathaway’s 13F statement of its changes in stock holdings during Q2 it became apparent that the company purchased 20.9 million shares in Barrick Gold, while shedding the remainder of its stake in Goldman Sachs and the major airline companies, as well, as some of its holdings in some other key financial institutions like Wells Fargo Bank and JP Morgan.  While many commentators see this as a sea change in Buffett’s opinion of precious metals, we don’t.  It is purely, in our opinion, a wise investment move.  Barrick will be coining it at current gold prices – even after last week’s gold price fall and is on a rising dividend path.  It has key executives brought in from Randgold, which ran a much tighter ship with a view to putting some of this acumen into play in what used to be the world’s biggest gold miner.  This position has been overtaken by Newmont (NEM) after its take-over of Goldcorp, but Barrick remains comfortably in the No.2 position and is hugely benefiting from many of the cost cutting and capital investment control measures implemented by its new management.

Berkshire Hathaway did not get to where it is today by ignoring key trends in the investment sector, even if that means making some basic changes to its investment principles.  The precious metals mining space is, and will continue to be, a beneficiary of the current COVID-19 impact on the markets, and the fact that Barrick also pays a decent dividend will also not have gone unnoticed.  Buffett himself probably still holds his previous viewpoint on what he sees as the anomalous nature that gold bullion plays in the global financial system.  But he, and his fellow Berkshire Hathaway executives, will still recognise a good investment opportunity when they see one, and blue chip gold stocks like Barrick certainly tick a lot of the boxes for likely short to medium term investment growth.  Indeed we have been recommending the Tier 1 gold miners as very strong investment choices in some recent articles: See - Gold And Silver Miners Generate Huge Profit Margins

Berkshire Hathaway has a big following in the U.S. and we hear Barrick stock rose quite sharply after hours on Friday after the news hit the wires.  We anticipate further rises in Barrick and probably other gold stocks when U.S. markets open later today.  And since such an investment in a gold stock in itself signifies a degree of confidence in the continuing positive progress of the metal itself we would not be surprised to see the gold price gain a few dollars on Monday too.  Whether that will provide sufficient momentum to drive the yellow metal back up through $2,000 again is probably too early to tell, but it will certainly help refocus some institutional investment management back into gold and gold stocks.

17 Aug 2020 | Categories: Gold

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