Has the Oracle of Omaha seen the yellow light? Everyone’s favorite billionaire investor, Warren Buffett, has had a raucous 2020: selling his stakes in the airlines, ditching the financials, exiting the newspaper business, and missing out on the massive bull runs. Buffett has now seemingly changed his two-decade-old opinion on gold by purchasing one of the world’s largest miners. Despite his previous warnings about the precious metal being an instrument of fear and nothingness, you have to wonder if Buffett is betting against the U.S. economic recovery or if he is greedy when others are fearful.
Buffett Bullish on Barrick
Berkshire Hathaway recently added Barrick Gold Corp. to its portfolio of stocks in the second quarter, according to a Securities and Exchange Commission (SEC) regulatory finding. The company bought 20.9 million shares, with a current market value of $565 million. When the news broke, Barrick stock climbed more than 8% in after-hours trading to just below $30 a share.
Paulson & Co., managed by billionaire hedge-fund manager John Paulson, also contributed to its holdings in Barrick.
The developments were reported after the company raised its quarterly dividend by 14% to seven cents a share. Barrick made the decision following an impressive fourth-quarter profit of about $1.39 billion.
Wall Street has suddenly fallen in love with the metals market, investing $2.4 billion in the April-June period. For years, investment titans had shunned gold and miners, presenting the argument that the commodity does not offer much utility. Plus, miners are notorious for their minuscule dividends. But as prices for gold and silver skyrocket due to inflation concerns and low Treasury yields, producers are witnessing handsome profit margins.
Buffett’s move would not have been such a big deal were it not for Berkshire’s other positions. During Q2, the gold standard of finance shed its positions in JPMorgan Chase (-62%) and Wells Fargo (-26%) and eliminated its Goldman Sachs account. Is Buffett turning sour on the U.S. economy in the Coronavirus aftermath?
Warren Buffett Rebuffs Gold
For the last 20 years, Buffett has mocked, belittled, and denigrated gold and the bugs. In 1998, he famously said in a Harvard speech:
“(Gold) gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
Since the Great Recession, Buffett had doubled down on his disdain for the yellow metal. He called gold traders “bandwagon investors” who “create their own truth” and later quipped that “the magical metal was no match for the American mettle.”
But all these comments were made before the Federal Reserve embarked upon a currency-destroying crusade that will inevitably lead to massive price inflation. Buffett is unlikely to be impacted by the central bank’s money-printing scheme since he and his pals benefit from the Fed’s interventionism. It is still a testament to somebody who also recommended investors “to be fearful when others are greedy, and to be greedy only when others are fearful.” Since the consensus on The Street is that inflation is on the horizon, perhaps Buffett is taking advantage of the doomsday prognostications. He is hopping on that same bandwagon he had dismissed.
In recent weeks, gold and silver exchange-traded funds (ETFs) have reported an explosion of inflows. Ray Dalio and his Bridgewater Associates, for example, acquired 1.4 million shares in the SPDR Gold Trust (equivalent to 130,000 ounces of gold) for a total $914.3 million and 4.1 million shares in the iShares Gold Trust (equal to 41,000 ounces of gold) for a total of $268.4 million.
Gold Is Money – and More
Who can dispute with a multibillionaire legend? But Buffett gets it wrong when he claims that gold has zero utility. Sure, it is primarily identified as a hedge against inflation, but it is so much more. The precious metal is used in dentistry, manufacturing, medicine, computers, mobile phones, and construction. Most important of all, gold’s history shows that it has been the money of choice for civilizations worldwide. This was the case in the United States until the central planners determined that the path to prosperity was through the printing press. The smartest men and women in the investment community may loathe gold, but if it is raining outside, you are going to carry an umbrella.
Read more from Andrew Moran.