Buffett Bought Gold Mining Shares. Is He Hedging Against an Imminent Financial Collapse?

It’s not often that you can go to a mainstream financial website and see gold mining stocks dominating the headlines. But when a legendary billionaire investor who used to trash-talk gold is now loading up on mining shares, it’s a news story that the press just can’t resist.

Back in 2011, Berkshire Hathaway CEO Warren Buffett likened gold to a giant, shiny cube that in his opinion was “incapable of producing anything.” A few years later, in 2018, Buffett sarcastically called gold “the magical metal.” So obviously, the Oracle of Omaha didn’t see a gold-sector investment in his future.

Buffett might have scoffed at gold, but the gold price is substantially higher today than it was in 2018 and recently surpassed its peak from in 2011, when he was making his anti-gold comments. This isn’t to disrespect Warren Buffett as he is a highly successful investor, but his track record certainly isn’t perfect.

After all, Buffett has admitted that he doesn’t understand technology and that’s why he didn’t take an early position in tech stocks like Google and Microsoft. That was a mistake on his part, as he could have allowed other, more tech-savvy financial experts to invest in tech stocks on his behalf.

Yet he didn’t do that, and so he missed the boat on the tech renaissance of the 2000’s and 2010’s. Buffett also screwed up with airline stocks this year. He sold off all of Berkshire’s airline-company shares (United, Delta, American, and Southwest) at the bottom during the onset of the coronavirus crisis. Very soon after he did that, those stocks all went up in value.

Looking over Berkshire’s holdings over the past couple of decades, we can discern that Buffett has favored big-bank stocks and avoided precious metals and miners completely. That strategy hasn’t worked out too well for Buffett:

Courtesy: ZeroHedge

Compared to the significant move in gold, financial-sector stocks have been dead money. So, Buffett’s not in a strong position to continue trash-talking precious metals. I don’t expect him to admit his error like he did with airlines and tech stocks, but Warren Buffett can’t disparage hard assets when they keep proving him wrong.

If he won’t admit his mistake with gold, could Buffett at least switch up his investing strategy now that the gold price is clearly moving north? With the U.S. government cranking up the money-printing machine to pay for massive coronavirus relief funds, there’s no doubt that the dollar will lose value and gold will continue its bull run.

And could Buffett, again without admitting it verbally, finally start to unload some of Berkshire’s underperforming big-bank stocks? As it turns out, an SEC 13-F filing revealed that Berkshire reduced its position in JPMorgan, Wells Fargo, PNC Financial, M&T Bank, Bank of New York Mellon Corp., Mastercard, and Visa, and sold all of its Goldman Sachs stock.

But here’s the real kicker: the same man who, back in 1998, declared that gold “has no utility” now owns nearly 21 million shares of Barrick Gold, a position worth $563.5 million at the time of purchase. Talk about an abrupt U-turn – the financial media was stunned to see Berkshire Hathaway taking a big stake in a gold miner.

In fact, while Buffett did add to some other positions (Kroger, Store Cap, and Suncor Energy), Barrick Gold was Berkshire’s only new position in Q2. As you would expect, this news item immediately trended on social media. Rich Dad, Poor Dad author Robert Kiyosaki pulled no punches in his assessment of Buffett’s about-face:

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Courtesy: Robert Kiyosaki

As usual, Kiyosaki sees what many others unfortunately don’t. Warren Buffett’s purchase of gold-mining and his dumping of financial stocks are emblematic of a negative outlook on the U.S. dollar and on the state of the economy.

Every purchase and sale that Warren Buffett makes is, in effect, a statement of where he thinks the economy is headed. Clearly, he doesn’t believe that mega-banks can earn strong returns on their loans in an ultra-low interest-rate environment.

Buffett is also, through his actions rather than his words, expressing an opinion on high-flying stocks versus underpriced commodities. He didn’t add any tech stocks, and that’s a loud and clear statement that Warren Buffett, value investor extraordinaire, doesn’t see them as a strong value now.

He does see Barrick Gold’s value, though, and that’s encouraging for mining-share investors everywhere. We didn’t need the Oracle’s stamp of approval, but the Buffett boost is a welcome event nonetheless.