According to an SEC filing released late on Friday, Berkshire Hathaway bought a sizable position in Canadian miner Barrick Gold (NYSE: GOLD) in the second quarter while simultaneously selling shares of U.S. banks.
The filing shows Berkshire purchased 20.9 million share of GOLD, worth over $560 million. Shares of GOLD jumped over 8% in after-market trading following the announcement.
Meanwhile, the filing also showed Berkshire sold 85.6 million shares of Wells Fargo (which was about 26% of the company’s stake in the bank), 35.5 million shares of JPMorgan shares (about 60% of Berkshire’s position), and all of its holdings in Goldman Sachs.
Buffett hasn’t always been a fan of gold. In 1998 he said:
[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. Anyone watching from Mars would be scratching their head.
But surging gold prices are boosting revenues and profits for miners, making them more attractive to generalist investors like Buffett.
Gold bugs on social media went nuts over the announcement with many commenting on the importance of the news.
Zero Hedge wrote that Buffett buying gold is “a signal that none other than the Oracle of Omaha appears to now be quietly betting against the United States” because “the famously anti-gold investor has abandoned banks — the backbone of America’s credit-driven economy — in favor of a gold miner.”
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But there’s one thing most of these commentators are overlooking…
Warren Buffett didn’t buy gold. He bought GOLD.
He didn’t buy the physical metal. He bought shares of Barrick, a gold miner.
Buffett wasn’t correct when he said gold has no utility. Gold does in fact have many production applications. Gold is a great electrical conductor and it will never oxidize. It’s just that gold’s price often demands manufacturers use a cheaper material.
But Buffett is correct in that gold doesn’t produce anything. It doesn’t pay a dividend. You can’t build on top of it or expand it through labor. You can always buy more gold. But one physical ounce of gold will never turn into two.
GOLD, on the other hand, does produce something. GOLD produces gold. But more importantly, it produces revenue and profit. And that’s really the only thing Berkshire Hathaway shareholders are looking for.
So I don’t think Warren Buffett is becoming a gold bug. Instead, he’s just riding the momentum of rising gold prices.
The only thing Friday’s SEC filing really shows us for sure is that Warren Buffett believed Barrick Gold would be a profitable investment during the second quarter.
I recommend taking a look at what my colleague Christian DeHaemer is saying about gold right now. Click here.
Until next time,
Luke Burgess
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
