Warren Buffett’s Barrick Gold investment marks big change for investor

• Warren Buffett’s Berkshire Hathaway bought shares in a gold miner last quarter, despite the billionaire investor dismissing gold as a subpar asset for more than 20 years.
• Berkshire added 20.9 million shares of Barrick Gold worth about $564 million to its portfolio, its only new position in the period.
• Buffett has repeatedly blasted gold for being an unproductive asset that has underperformed stocks in the long term.
• “If you bought gold at the time of Christ and you figured the compound rate on it, it may be a couple tenths of 1%,” he said at Berkshire’s annual meeting in 2018.
  

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Warren Buffett’s Berkshire Hathaway made its first investment in a gold miner last quarter, even though the famed investor has warned against betting on the precious metal for at least two decades.

The conglomerate bought 20.9 million shares of Barrick Gold, worth about $564 million at the end of June, according to its latest portfolio update. The miner was its only new holding in the period.

The news of Buffett’s backing sent Barrick’s stock price up as much as 10% in pre-market trading on Monday.

Berkshire’s move is a shock given Buffett’s repeated dismissal of gold as a compelling investment.

He has called it less appealing than a farm or a business because it doesn’t produce anything, and pointed out that it has massively underperformed stocks in the long term.

Here are some of Buffett’s past criticisms of gold:

• “[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” — speech at Harvard University in 1998
• “It’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that” — comparing companies like Coca-Cola and Wells Fargo to gold in a CNBC interview in 2009
• “Neither of much use nor procreative … if you own one ounce of gold for an eternity, you will still own one ounce at its end” — 2011 letter to shareholders
• “We could buy all US cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, earning more than $40 billion annually) [and] have about $1 trillion left over for walking-around money — arguing in his 2011 letter to shareholders that gold is incredibly expensive as the global stock of the metal would fit in a baseball infield and produce nothing, but still carry a price tag of $9.6 trillion
• “The magical metal was no match for the American mettle” — comparing the returns from a gold bet and an investment in a S&P 500 index fund in 1942 in his 2018 letter to shareholders
• “If you bought gold at the time of Christ and you figured the compound rate on it, it may be a couple tenths of 1%” — Berkshire annual meeting in 2018
• “For every dollar you have made in American business, you would have less than $0.01 of gain by buying [gold]” — comparing a $10,000 investment in a cross-section of US stocks in 1942, which would be worth about $51 million in 2018, with a gold bet of the same size that would be worth about $400,000, at the annual meeting in 2018.

Buffett is clearly a vocal critic of gold, but it’s important to note that he has invested in precious metals in the past.

The Berkshire boss purchased almost 130 million ounces of silver in the late 1990s as he predicted shrinking stockpiles would drive up the metal’s price. He also bought silver in the 1960s in anticipation of its demonetization by the US government.

Moreover, Buffett might not be behind the Barrick investment. One of his two investing deputies, Ted Weschler and Todd Coombs, may have made the call.

Berkshire’s stock portfolio was also worth more than $200 billion at the end of June, meaning its Barrick position is tiny relative to many of its other holdings.

However, the investment still represents a significant shift in Berkshire’s stance on gold and a puzzling departure from Buffett’s stated views on the metal.

Buffett has advised investors against buying gold in times of fear and uncertainty, arguing stocks will almost certainly perform better in the long run.

Berkshire’s bet on a gold miner during a pandemic suggests he may have changed his mind.