Home » Investing » Metals and Mining Stocks » Warren Buffett: Why Did He Just Sell GOLD?
Warren Buffett’s investment firm sold all its stake in Barrick Gold (TSX:ABX)(NYSE:GOLD) in the last quarter. Let’s explore the key possible reasons for his decision to sell this Canadian mining company’s shares.
Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), earlier this week, filed its form 13F with the Securities and Exchange Commission. In its latest filing, Warren Buffett’s investment firm revealed that it sold all its stakes in Barrick Gold (TSX:ABX)(NYSE:GOLD) in the quarter ended December 2020. At the end of the previous quarter, Berkshire Hathaway held around 12 million shares of this Canadian mining company. The news of Buffett’s exit from GOLD stock triggered a sell-off as it fell by 4% yesterday.
Barrick Gold released its Q4 and full-year 2020 earnings this morning. Before we explore possible reasons for Buffett’s decision to sell its stock, let’s take a closer look at the company’s latest quarterly results.
Barrick Gold’s latest earnings
Barrick Gold reported adjusted earnings of US$1.15 per share in the year 2020. It was more than double its adjusted earnings of US$0.51 per share in 2019. With this, the company managed to beat analysts’ earnings expectation of US$1.14 per share by a narrow margin.
The company also met its 2020 gold production guidance with seemingly stable operating performance. Higher gold and copper prices last year helped the company improve its margins significantly.
Barrick Gold’s adjusted EBITDA margin stood at 59% in 2020 compared to 50% in the previous year. Its sales for the year also jumped by 30% to US$12.6 billion. Despite its better-than-expected Q4 and full-year 2020 results, its stock fell by more than 1% later today — after slightly rising this morning.
Dismal 2021 guidance
Last year, the pandemic affected some of Barrick Gold’s business operations and increased its costs. Its 2020 results were impressive in such a scenario as it managed to maintain good financial progress, despite the COVID-19 woes.
But the company’s 2021 gold and copper production forecasts couldn’t press investors. Barrick Gold expects its 2021 gold production to remain between 4.4 to 4.7 million ounces — lower than 4.76 million ounces of gold produced in 2020. Similarly, it guided its copper production to remain between 410 to 460 billion pounds compared to 457 million pounds produced last year. Barrick Gold also expects its costs to remain high this year.
Why Buffett sold GOLD
Barrick Gold’s stock price and its profits are highly correlated with the commodity market. A rally in gold and copper prices tends to boost the company’s profitability. After posting its all-time high in August 2020, gold prices are consistently falling. It is currently trading near its lowest level since July 2020. Commodity experts expect gold prices to fall further in 2021 and beyond, as the mine production continues to improve amid gradually slowing demand. These factors could badly hurt gold mining companies’ — including Barrick Gold — profitability.
When Buffett revealed his position in a gold and copper mining company last year, it came as a big surprise for many. In the past, Buffett has publicly criticized investing in the yellow metal on many occasions. However, his decision to bet on a gold mining company could be a well-thought one, as everyone wanted to hedge their risks amid the pandemic.
Buffett decided to sell GOLD stock, as the global pandemic started gradually subsiding. So, he might have sold the Barrick Gold stock just at the right time, I believe.
Foolish takeaway
Despite its strong profits and rising sales in 2020, falling gold prices could affect Barrick Gold’s financials in the near term. That’s why you may want to invest your hard-earned money in other, better high-growth stocks instead. Such high-growth stocks could give you much better returns than Barrick Gold stock.
Buffett, the venerable chairman and CEO of Berkshire Hathaway Inc., has long been critical of gold as an investment option. He views gold as an unproductive asset, highlighting its inability to generate income or compound in value over time.
Given Buffett's aversion to gold, market watchers were understandably surprised when Berkshire Hathaway invested in Barrick Gold (TSX:ABX,NYSE:GOLD) in Q2 2020, paying around US$560 million for about 21 million shares of the major gold miner.
Over 30 years ago, Warren Buffett, CEO of Berkshire Hathaway, made his first purchase of silver in anticipation of the metal's demonetization by the U.S. Government. Since that time he has followed silver's fundamentals but no entity he manages has owned it.
Buffett himself has pledged that 99% of his wealth will go to philanthropy during his lifetime or upon his death. As of 2023, the shares he's already given away were worth about $50 billion based on their value at the time of donation, or about $130 billion given Berkshire Hathaway's stock value at the time.
I'd stop investing in gold and silver completely. I don't put money in precious metals at all, because they have a lousy long-term track record. — Dave Ramsey is CEO of Ramsey Solutions.
Central banks purchase gold to diversify their reserves and gain liquidity from a ubiquitous asset without credit risk. For institutions and governments with long time horizons, gold's unique characteristics make it a natural option as a reserve asset and store of value.
It is clear that Warren Buffett doesn't like gold investments. And the common reason he portrayed is that gold earns nothing if you hold it. The investment decision in Barrick Gold was broadly considered to be made by Berkshire's investment managers Todd Combs or Ted Weschler.
Warren Buffett bought more than $1 billion in shares of the Coca-Cola Company (KO) in 1988, an amount that was then equivalent to 6.2% of the company. The purchase made it the single largest position in Buffett's Berkshire Hathaway Inc.
World's third richest person Warren Buffet's Berkshire Hathaway has sold its last Walmart shares, ending a relationship of over 20 years. The world's largest retailer was once among Berkshire's five biggest equity holdings as recently as 2014, valued at over $5 billion.
Something about his general demeanor suggests that Buffett bought his Rolex President in the 1980s when he first made it big and he has looked after it and held onto it ever since.
Susan died at the age of 72 after suffering a cerebral hemorrhage during the summer of 2004 in Cody, Wyoming. Bono performed "Forever Young" and "All I Want Is You" at her funeral. Warren was so grief-stricken that he did not attend.
Buffett's current vehicle, the 2014 Cadillac XTS that he has owned for approximately ten years, is a testament to his reputation for frugality. Despite his ability to afford any luxury car, Buffett drives a vehicle far from the flashy exotic cars one might associate with a billionaire.
Warren Buffett is only leaving his three children an inheritance of 2 billion each out of his predicted estate of 65 billion. Why would he not distribute all of his estate to his children? Because he wants to leave large amounts to his many charities.
For example, if the dollar loses value from the effects of inflation, gold tends to become more expensive. So an owner of gold is protected (or hedged) against a falling dollar because, as inflation rises and erodes the value of the dollar, the cost of every ounce of gold in dollars will rise as a result.
In the case of a global recession, gold is still seen as a valuable commodity because of its liquidity, and it is an easy asset to cash in on when the markets are down.
Gold is seen as a safe haven when it comes to investing. It's the top choice for hedging against losses. Since billionaires have a lot to lose, they make it a priority to hold on to their wealth. As investors, they'll have stocks and bonds in their portfolios.
War tensions have eased and investors are pivoting away from safe havens to riskier assets. Gold contracts were down 2.7% on Monday and on pace for their worst one-day decline since Feb. 3, 2023, when they slid 2.8%, according to Dow Jones Market Data.
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