Warren Buffett is dumping banks and buying gold, should you?

Warren Buffett has dumped his entire position in Goldman Sachs shares in exchange for Barrick Gold shares. Should be buying ASX gold shares?

| More on:
Old fashioned scales weighing two gold bars in front of dark background, gold share price, newcrest mining share price

Image source: Getty Images

The finance news has been filled with stories about Warren Buffett’s latest gold play. It might be happening in another country, but when an investor as famous as Buffett changes his portfolio, the world takes notice.

What changes took place?

In a surprise move, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), Buffett’s multinational holding and investment company, dumped its entire position in Goldman Sachs shares in exchange for around US$565 million of Barrick Gold Corp (NYSE: GOLD) shares.

This latest change comes off the back of Buffett announcing in May that he had decided to close whole positions in the four major airlines in the United States – Delta Air Lines, Southwest Airlines, American Airlines Group and United Airlines Holdings

With Berkshire Hathaway’s portfolio evolving, investors around the world are speculating on the reasoning.

The last time Barrick Gold’s share price went on a major run was in 2007, during the start of the GFC and the price was around US$30.00 per share. Once the GFC began, Barrick Gold’s share price increased by around 80% to US$55.00. Currently, Barrick is back at around US$30 per share and we are still facing the COVID-19 pandemic. Could the risk of further market corrections be part of the reason behind Berkshire’s latest move?

Warren Buffett on gold

Warren Buffett doesn’t like gold. He never has. Consistently, he has expressed his opinion on the precious metal. 

Quite famously at a 1998 Harvard speech, the investor was quoted saying “[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”.

Then during a CNBC interview in 2009, he said “It’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that”.

He has made numerous statements like this throughout the years. Buffett classifies gold as an ‘unproductive asset’. This means it does not produce anything itself. The only way for an investor to make money is to sell it at a higher price than they paid. Of course, in the functioning world, gold has various uses, the most obvious of which being in the jewellery industry. However, Buffett’s view is that the precious metal is simply ‘unproductive’.

ASX gold shares

The gold price is surging this year and looks to have further upside to come. Higher gold prices mean more profit for producers.

At home in Australia, we have a number of larger, well regarded gold producers. Investors looking to follow in Buffett’s footsteps can start by looking at the following three local producers.

Newcrest Mining Limited (ASX: NCM)

Newcrest Mining shares have been dropping recently after the company published its FY20 results. Newcrest is one of the worlds largest gold mining companies with multiple projects here in Australia. Despite the recent drop in value, the Newcrest share price is still up almost 70% from its March lows, which shows exceptional strength. I think the latest dip in the miner’s share price presents a buying opportunity. 

Northern Star Resources Ltd (ASX: NST)

Northern Star is one of Australia’s leading precious metals producers, with its operations concentrated in Western Australia. The company is involved in exploration, development, mining and processing of gold. It is a major player with a market capitalisation of just over $11 billion. The Northern Star share price has returned more than 32% to investors this year alone.

Evolution Mining Ltd (ASX: EVN)

Another major gold producer here at home is Evolution Mining. With recent strong earnings results, and full year profits totalling more than $400 million, Evolution is certainly worth considering for your portfolio. Returns wise, the Evolution share price is up a staggering 68% in 2020 alone!

Foolish takeaway

Warren Buffett is one of the most famous and successful investors of all time. Whenever he makes a decision, whether it’s a buy or a sell, the world takes notice. His investment decisions can cause what’s known as the ‘Buffett Effect’, which means that other investors will copy his movements. Although Buffett is usually not a fan of buying gold in and of itself, Barrick Gold is showing huge potential upside not seen since the GFC. Speculators might say that this means Buffett is hedging his portfolio in the case of a market correction. Whilst this is certainly the most obvious point of view, the gold price is still up more than 25% this year alone.

The simple facts are that with a consistently rising gold price, it makes sense to invest in gold producers as higher prices mean higher profits. Higher profits mean more growth. For those investors looking to follow in Buffett’s footsteps, we are fortunate to have access to some of world’s great gold producers right here in Australia. 

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

glennleese has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: short September 2020 $200 calls on Berkshire Hathaway (B shares), long January 2021 $200 calls on Berkshire Hathaway (B shares), and short January 2021 $200 puts on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Top 10 - asx shares today
Share Market News

Here are the top 10 ASX shares today

Today, the S&P/ASX 200 Index (ASX: XJO) fought back against the selling pressure throughout the day to finish in the green. …

Read more »

The word inflation written with a ticking time bomb.
Share Market News

Why is it when Jerome Powell sneezes, the ASX 200 catches a cold?

Key points The ASX 200 took a hit following comments from the United States Federal Reserve chair Jerome Powell Expectations …

Read more »

blue arrows representing a rising share price ASX 200
Share Market News

These 3 ASX 200 shares are topping the volume charts this Friday

Finally, a day of green for ASX shares! The S&P/ASX 200 Index (ASX: XJO) is bouncing back strongly today, after a …

Read more »

Young boy wearing suit and glasses adds up on calculator with coins on table
Share Market News

This world-famous fund manager is ‘buying the dip’. Here’s why

Key points Bill Ackman is one of the most famous fund managers in the world He runs Pershing Square Capital …

Read more »

Two male ASX 200 analysts stand in an office looking at various computer screens showing share prices
Share Market News

ASX 200 (ASX:XJO) midday update: ResMed and PointsBet disappoint

At lunch on Friday, the S&P/ASX 200 Index (ASX: XJO) is on course to end the week on a much-needed positive …

Read more »

A man activates an arrow shooting up into a cloud sign on his phone, indicating share price movement in ASX tech shares
Share Market News

Is the Betashares Nasdaq 100 ETF (ASX:NDQ) an opportunity in this market correction?

Could the Betashares Nasdaq 100 ETF (ASX: NDQ) be a good opportunity during this correction for both the global share …

Read more »

A woman shouts through a megaphone.
Share Market News

2 ASX growth shares to buy in February with 40% upside

If you’re looking to make some additions to your portfolio in February, then the two ASX shares listed below could …

Read more »

Business woman watching stocks and trends while thinking
Share Market News

5 things to watch on the ASX 200 on Friday

On Thursday, the S&P/ASX 200 Index (ASX: XJO) fought hard and was able to record a small gain. The benchmark index rose …

Read more »