Warren Buffett's Berkshire Hathaway Joins the Gold Rush
By Amrith Ramkumar
Warren Buffett's Berkshire Hathaway Inc. has put its gilded name
behind one of the largest gold-mining firms, adding to the list of
big-name investors making wagers tied to the precious metal at a
time of significant economic uncertainty.
Berkshire late Friday disclosed that it held a $565 million
stake in Barrick Gold Corp., the world's second-largest gold miner,
at the end of the second quarter. The stake makes Berkshire the
11th-largest shareholder in Toronto-based Barrick, according to
The move is striking because Mr. Buffett has in the past said he
doesn't like investing in gold. Unlike dividend-paying stocks or
high-quality bonds, buying and holding the metal in an investment
portfolio generates no income. The Barrick stake is made up of
common shares that pay a dividend.
New York-listed shares of Barrick surged 12% on Monday following
the news of Berkshire's stake, bringing their advance in 2020 to
more than 60%. Shares of other gold firms rose as well, while
Berkshire's Class B shares dropped 1.6% on a mixed day for major
U.S. stock indexes.
The news "is earth shaking in the gold market," said Bob
Haberkorn, senior market strategist at RJO Futures, adding that
Berkshire taking the stake in Barrick at the same time that it
unloaded billions of dollars in bank stocks such as Wells Fargo
& Co. and JPMorgan Chase & Co. was instilling more faith in
the bullion rally.
A sharp rally in gold's price tends to be a sign of economic
unease. Many buyers say they are taking refuge in gold because they
believe ultralow interest rates and government stimulus enacted in
response to coronavirus-related shutdowns will erode the value of
paper money and stoke inflation. Gold becomes more attractive when
interest rates are low, because low rates reduce the appeal of
rival investments such as bonds, and draws in investors who are
anticipating inflation because rising consumer prices mean it would
take more dollars to buy the same amount of gold.
Many other notable investors have also touted gold in recent
months or disclosed positions tied to the metal, including Ray
Dalio and Jeffrey Gundlach.
Gold prices this month hit an all-time high, with most actively
traded futures rising near $2,070 a troy ounce on Aug. 6. They have
since retreated but remain up roughly 30% for the year, outpacing
other popular assets like the tech-laden Nasdaq Composite stock
index. They advanced 2.5% to $1,998.30 on Monday, with traders
citing Berkshire's stake in Barrick as a reason for the
Investing in gold miners is different from owning physical gold
or futures contracts because miners can pay dividends to
shareholders. Barrick said recently that it is increasing its
second-quarter dividend by 14% to 8 cents a share. Barrick and
other large gold miners such as Newmont Corp. have benefited from
soaring metal prices recently. One of Berkshire's portfolio
managers, Ted Weschler and Todd Combs, could have also taken the
position in Barrick.
Berkshire and Barrick couldn't immediately be reached for
Mr. Dalio's Bridgewater Associates LP, the world's largest hedge
fund, recently disclosed that in the second quarter it increased
its stakes in two popular exchange-traded funds that are backed by
physical gold -- the SPDR Gold Shares and iShares Gold Trust.
Bridgewater's combined stake in the two gold ETFs is valued at more
than $1 billion, FactSet data show.
Since gold began surging last summer, other recognizable
investors including Mr. Gundlach, chief executive of DoubleLine
Capital, and Paul Tudor Jones have said they are also bullish on
the metal. Gold prices are up about 50% since the end of May 2019,
while gold's precious-metal peer silver has more than doubled since
hitting a low in March.
Even among those who are bullish on gold, many are divided on
the best way to invest in the metal. Shares of gold miners have
failed to match gold's price gains for years and are known to be
more volatile, with analysts citing challenges in finding new mines
and operational obstacles in far-flung parts of the world driving
big swings in gold-mining stocks.
However, some investors say shares of gold miners are now poised
to outpace the metal, with their rising profits making them more
attractive than many other sectors of the stock market that have
been battered by the pandemic.
Many individual and institutional investors are now using them
and popular precious metals ETFs to insulate their portfolios from
"We've been extremely busy since the spring with people buying
gold and silver," RJO's Mr. Haberkorn said. "There's a fear out
there right now."
--Nicole Friedman contributed to this article.
Write to Amrith Ramkumar at email@example.com
(END) Dow Jones Newswires
August 17, 2020 13:04 ET (17:04 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.