Friday SEC filings revealed that Warren Buffett’s Berkshire Hathaway company has made a massive bet on the the price of gold by buying $563.6 million dollars worth of mining giant Barrick Gold (NYSEARCA: GOLD). He bought a total of 20.9 million shares. This news came after the close on Friday so it could influence the stock this morning. I own shares myself and will be curious to see what happens with the stock today. Check out the chart.
These purchases of Barrick shares that Berkshire Hathaway has made were done at an average price of around $27.00 per share in this past quarter. They happened AFTER the March stock market drop and during the stock market rally. I’ve been owning Barrick for the past few years so I am in at a lower level and so are probably most of the people reading this post.
This is not to say I am a better investor than Buffett. In order to help fund these purchases Berkshire Hathaway has sold stakes in Wells Fargo, JP Morgan, and Goldman Sachs. It didn’t sell out of these companies completely. Buffett first bought Wells Fargo in 1989 and sold its stake by 23% in this past quarter to cash out 236 million shares. Berkshire will still have an agent on the board of directors of JP Morgan despite selling 62% of its holdings in that company. That’s huge power.
While many small Robinhood traders have been piling into companies like Tesla and bankrupt zombies like Hertz in the last quarter Buffett’s Berkshire has instead accumulated Barrick Gold. It’s not hard to guess who will be right, but Buffett takes a big picture view instead of just focusing on a daily price gyration on an app.
And it is that big picture view that is partly driving his interest in the mining world and gold. Buffett expressed worries over the Federal Reserve’s policies and the endless debt in a recent talk you can see here.
Highlight: What happens if interest rates go negative? “You better own something other than debt,” Warren Buffett says. “I’ve been wrong in thinking you could really have the developments you’ve had without inflation taking hold.” #YFBuffett pic.twitter.com/VE225sDWZj
— Yahoo Finance (@YahooFinance) May 3, 2020
Many people follow Warren Buffett’s moves. When he praised Apple as a stock he had to buy on CNBC a year ago many CNBC watchers felt good about it and bought more. This news of Buffet’s entry into gold should drive some new investors into the metals world – even some on Robinhood finally.
I own gold, silver, and mining stocks because I think they will go up. They are in a bit of a correction/consolidation phase with the dollar’s oversold condition on the charts that makes me see the rest of this month as a final good entry point before the currency moves start to become obvious to people. Buffett though if you listen to remarks is owning it because he sees that it could one day become a necessary investment in the face of the Federal Reserve/Treasury buying manipulation of bonds so that they yield such low rates that they no longer make any sense from an investment standpoint.
This is not his first foray into metals. In the 1980’s Buffett at times denounced gold and silver as worthless in comparison to stocks, because they don’t pay interest themselves, but then in 1997 he made a mega purchase of 111 million ounces of silver and then bought some more the next year.
He did it because he saw that silver had been in a vicious bear market since 1980 and saw a secular price bottom.
People don’t talk about it, but Buffett also bought silver in the 1960’s in anticipation of the day that the US would have to get off the gold standard. And President Richard Nixon did it on August 15, 1971 – an anniversary that happened two days ago and hasn’t been mentioned anywhere I saw this weekend.
But when you know financial history you can put the pieces together and see why Buffett is doing it again.
You can’t see any of this looking at a Robinhood app, but people on apps can see how my top gold mining stock of this month is doing. Robinhood is a good way for someone totally new to trading to get started and is perfect for youngsters used to being on their phone all of the time, because it is so easy to use. It’s like little league. But it doesn’t have enough information on it to became a master of the markets. It’s like taking a knife to a gunfight. And in the financial markets gold is becoming a necessary investment.
-Mike
