Warren Buffett Invests In Gold, Is He Betting Against US Economy?

In the latest Form 13F filing, Berkshire Hathaway presented the markets with a few surprises. The law stated that Form 13F must be filed with the Securities and Exchange Commission (SEC) quarterly by institutional investment managers who have over $100 million in assets under management. The form lists the manager’s equity positions, although not shorts.

Berkshire’s filing came as a surprise to the markets for two reasons. First, it exited or trimmed its position held in several banks. Second, it added a position in Barrick Gold Corporation, a gold mining company. The internet went wild with a few intriguing headlines:

• “Did Warren Buffett just bet against the U.S. economy? His latest investment raises some questions
• Golden touch: Is Warren Buffett betting against America?
• Warren Buffett traded Goldman Sachs GS -0.5% for gold in Berkshire Hathaway’s newly revealed portfolio
• Berkshire Makes a Bet on Gold Market That Buffett Once Mocked
• Warren Buffett undergoes a conversion on gold — should you follow him?”

The Twitter space also went ablaze:

Warren Buffet Had A Change Of Heart – After Decades Of Bashing Gold, Mr Buffet Dumps His Bank Holdings And Purchases Barrick Gold stock. Is Bitcoin Next?!#bitcoin #blockchain #business #gold #investinghttps://t.co/rwrfsSElU7

— My Crypto Advisor (@MyCryptoAdvisor) August 27, 2020

Buffett sold banks recently. And he bought gold stocks. He knows what's coming.

— Matt 🇬🇧🇵🇱🇺🇸🇨🇩 (@MattStirner) August 27, 2020

Are these headlines and tweets telling the true story? Did Warren Buffett, at 90, change his life-long investment plan and short the United States? He might not have done that. He is just diversifying his investment.

Banks Were Not Dumped

Here below is the list of Berkshire’s portfolio from the most recent 13F filing. You will note that the bank stocks are in green. Get the data 

The cumulative value of its bank stocks exceeds $40 billion. Additionally, Berkshire continues to hold many other stocks in the financial sector. It has huge stakes in MasterCard, Visa, and American Express. Notably, Amex is Berkshire’s fourth-biggest holding valued at more than $15 billion. Barrick Gold, which has resulted in all this internet frenzy is so small, it is hard to find on the holdings’ list.

Barrick Gold

Let us now take a dip into the investment in Barrick Gold. For now, it is still not clear whether Warren Buffett made the investment. He has already turned a huge part of the Berkshire portfolio over to two investment managers, Todd Combs and Ted Weschler.

While he at times confirms whether he was behind a trade, he is yet to comment on the Barrick Gold issue. Secondly, an investment in the gold mining firm is not an invest directly in gold. Some analysts and commentators may say, “six to one, half a dozen to another.” Just like lightning and lightning bugs sound similar, they are not the same.

Barrick Gold has several characteristics that are absent in gold itself including cash, a balance sheet, assets, an income statement, and dividends.

Additionally, it mines more than gold. The company also mines copper. In reality, it can be said that the price of gold and copper influences the company’s profitability. That is the case for any business that is tied majorly to a commodity.

Warren Buffett has previously invested in oil companies that are affected by the price of oil and Deere & Co., which is affected by the price of crops. But that’s a far cry from investing directly in commodities.

Third, Berkshire’s investment in Barrick Gold makes up a tiny fraction of the firm’s market capitalization and even its stock portfolio. Here are some figures put in some investment context:

Thus, Berkshire threw some pocket change into a mining company.

Buffett Is Yet To Change His Investment Philosophy

Warren Buffett is not a fan of gold as an investment and he has made it known publicly. Here are some of his comments about this precious metal:

“[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.”

While referring to gold, he said that it is a lot better to have a goose that lays eggs than a goose that just sits there and eats storage, insurance, and several other things.

“You could take all the gold that’s ever been mined, and it would fill a cube 67 feet in each direction. For what it’s worth at current gold prices, you could buy — not some — all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils (XOM), plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?”

The interesting thing about these quotes is that they do not apply to Barrick Gold. As opposed to gold, Barrick Gold ‘keeps laying eggs’ in the form of dividends and profits. It never buries the gold int he ground, it sells it to others who then bury it in the ground.