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Warren Buffett, a long-term critic of gold, surprised market watchers recently as he changed tack and bought into the precious metal.
His company, Berkshire Hathaway, shed some bank and airline stocks during the second quarter, and acquired just under 21 million shares worth more than $500 million from gold miner Barrick Gold, according to a filing on Friday.
The unusual move comes as the coronavirus pandemic continues to threaten economies around the world and leave many investors anxious, and analysts say it could entice others to follow suit.
Buffett has been vocal against investing in gold, citing that the “magical metal” is no match for the “American mettle.” He once said, “[Gold] has no utility. Anyone watching from Mars would be scratching their head” over why some people think highly of gold as an investment.
Impact on markets
Jeff Clark, a senior precious metals analyst at goldsilver.com believes that Buffett’s move could have an impact on the markets as it could spark more demand for the yellow metal and lead to higher prices.
“Warren Buffett has always been critical of gold, but he’s not stupid, he sees where profits will come from going forward. Institutional investors will follow, ergo higher gold and mining stock prices,” Clark said on social media.
He noted that when Buffett purchased nearly 3,500 tonnes of silver in 1997, “investors rushed into the sector, and it created many millionaires.”
Gold prices have reached new heights in recent weeks, mainly fuelled by investors rushing to safe havens amid growing uncertainty. On Tuesday, the metal hit more than $2,000 an ounce.
Peter Schiff, chairman of precious metals dealer SchiffGold, said it is clear that Buffett is not optimistic on the US economy or the US dollar.
“Warren Buffett knows inflation is a tax. If you don’t want to pay the tax, buy gold or gold stocks, just like Buffett did,” Schiff said.
“America is headed for a crisis the likes of which the world has never seen. Currencies have been destroyed before and people have been impoverished, but never on so great a scale. The loss of wealth will be unprecedented. To avoid this loss personally, buy gold and foreign assets,” he said in his analysis on Tuesday.
He noted that once the price of gold closes above $2,100, there’s a “good chance” that it will never drop below $2,000 again. “So, this may be the cheapest price you will ever be able to buy gold during your lifetime.
Analysts had earlier forecast that the price of gold could hit $3,000 an ounce next year.
No ‘Warrant Buffett effect’ yet
However, despite Berkshire Hathaway’s gold investment, there aren’t any strong indications yet that investors are following Buffett’s lead.
According to Carsten Menke, head of next generation research at Julius Baer, they haven’t seen “massive signs of investor buying.”
He’s betting on gold to move lower rather than higher in the medium to longer term, citing that the economic environment should continue to improve, which should weigh on safe-haven demand.
“The [recent] gains reflect the ongoing weakening of the US dollar … We still expect prices to move lower rather than higher in the medium to longer term. We stick to our neutral views as it is too early to turn cautious,” Menke said in a note on Wednesday.
(Reporting by Cleofe Maceda; editing by Seban Scaria)
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