Buffett Invests in Gold…Say What?!

by Aug 21, 2020Investment Strategy, Market News

A financial industry bombshell

The “Oracle of Omaha,” Warren Buffet—arguably one of the greatest and most successful investors of all time and followed closely by financial communities worldwide—just dropped a bombshell on his trusting and allegiant followers: He is investing in GOLD for the first time EVER, and in his second recent move he is now betting against the US banking system.

No, the above is not a typo, nor is it a joke. It is worth a double take. Yes, this is the same guy who is Chairman and CEO of Berkshire Hathaway with a net worth of almost $80 billion. The same guy that has denigrated gold since he started investing in 1942.

Buffett’s bet on gold and his history in silver

Berkshire Hathaway’s latest quarterly report (13F) is a signal (an alarm bell of sorts) that none other than THE SMARTEST investor is now quietly and steadily betting against the United States’ core banking system and buying gold by investing $564 million in Barrick Gold, the world’s largest mining company.

Does this go against his historical investment philosophy? Um, yes…

He once famously said:

“Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything.”

But less known is the fact that Buffett once cornered the silver market by controlling one of the
largest stakes in physical silver in history, back in the ’90s, so I humbly subscribe to the idea that—beyond discouraging investors from the metals markets that don’t support his companies—Buffett looks at opportunities in every type of market, metals included.

Buffett’s bet against the US banking sector

According to its latest quarterly report, Buffett’s Berkshire Hathaway has liquidated huge amounts of its exposure to US banks (exiting Goldman Sachs entirely).

  • Berkshire’s JPMorgan stake down 62%
  • Berkshire’s Wells Fargo stake down 26%.
  • Berkshire trimmed its bet on PNC Financial, M&T Bank, Bank of New York Mellon Corp., Mastercard, Visa, and others.
  • Berkshire exits Goldman Sachs stake entirely.

…and the only new holding he bought in Q2 was… GOLD.

So, the famously anti-gold investor has abandoned banks—“the backbone of America’s credit-driven economy”—in favor of gold.

Buffett, gold, the markets, and you

When you look at Buffett’s old critique of gold, take into account that the yellow metal has outperformed the markets by SIX TIMES since 2000—including his own Berkshire Hathaway portfolio by over 350%. The reason is simple: No market index can outperform gold when our central bank is debasing our currency via massive money printing, like we have seen over the last 20 years. I believe Buffett sees the same opportunity we wrote about here. Welcome to Precious Metals Land, Warren.

Now we expect to see the financial industry follow suit and go into gold even more aggressively, which will make the price of gold soar even higher as this precious metals bull gets “going in earnest.” After all, if the Oracle of Omaha believes in gold, so does the entire financial industry.

If you are one of our clients, this article will make you really warm and fuzzy inside. If not, here’s a suggestion on how you should look at this news. Whether Mr. Buffett is now going long on FEAR or just thinks gold is a good investment, it definitely shows us that times have changed. And quickly. It also tells you that you have not missed the boat—Buffett made his investment known just last Friday.

One of the smartest, most successful, and richest investors in the world has succumbed to the realization that ALL IS NOT GOOD in la-la land (the global economy). It’s a resounding confirmation of the current financial dangers, which we have been writing about for a few years. It’s time to wake up. Implement a plan. Protect yourself. Prepare. If Warren Buffett is doing it…

Darwin Hostelley

Darwin Hostelley

Sr. Portfolio Manager, Gold Alliance

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