Should You Follow Warren Buffett Into Barrick Gold (TSX:ABX)?

Warren Buffett has been buying and selling Barrick Gold Corp. (TSX:ABX)(NYSE:GOLD) amid the pandemic. Should you follow any of his moves?

| More on:

Warren Buffett has been a harsh critic of gold in the past. This all changed when Berkshire Hathaway made its initial stake in premier gold miner Barrick Gold (TSX:ABX)(NYSE:GOLD) amid the pandemic. Although the move was minuscule compared to Berkshire’s other holdings, it was still very much remarkable.

Was it Warren Buffett who decided to buy Barrick Gold in the first place?

Now, there’s no way to tell for sure if it was actually Warren Buffett himself who hit the buy button on shares of the TSX-traded gold stock. Given he had never been a big fan of the shiny metal, I don’t think it was the Oracle of Omaha himself to pull the trigger. I think it’s far more likely that his associates Ted Weschler or Todd Combs decided to get into the gold stock in the first place. Regardless, any move made by his associates ought to have Warren Buffett’s gold star of approval. And that in itself is good enough for Berkshire followers to conclude that the Oracle was bullish on gold stocks.

In any case, with Berkshire recently trimming its Barrick Gold stake by approximately 40%, I think Buffett fans should curb their optimism when it comes to the stock, especially now that shares are rolling over, with the end of the pandemic now in the cards for 2021 thanks to a handful of safe and effective COVID vaccines.

Barrick Gold: Slightly more bearish

I’ve been pounding the table on Barrick Gold stock well before the pandemic struck and Berkshire announced its stake. As uncertainties mounted in 2020, the demand for gold surged, and prices rose past the US$2,000 mark, making the price of admission into gold plays a tad excessive for those who view gold prices as unsustainably high.

Now that we’ve got vaccines being rolled out and a more-favourable-than-expected U.S. presidential election result (Joe Biden with no Blue Wave), I don’t think the magnitude of uncertainties justify the high price of admission into physical gold or top gold miners like Barrick. While an unprecedented rise in the rate of inflation is high, investors should not expect the “safe” asset to hold its value through the post-pandemic environment. Gold, while a compelling alternative asset for its volatility and hedging benefits, is itself at risk of a considerable amount of volatility should prices retreat towards mid-cycle levels.

Foolish takeaway for Warren Buffett fans

While it’s tough to tell what gold’s next move will be, one should not assume that Barrick Gold (or any other gold miner) will continue to enjoy enhanced profitability at the hands of these remarkably high gold prices. That said, there are real benefits to holding gold as a part of a diversified portfolio. As long as you’re not attempting to speculate on gold prices soaring to US$3,000, it makes sense to buy and hold a small position in Barrick Gold after its nasty 25% decline.

Warren Buffett still isn’t a fan of gold. And I think it would be a mistake for investors to “follow” him or Berkshire into a name like Barrick Gold with the thought that he thinks gold prices could soar higher. Berkshire likely treated the Barrick stake as a small hedge.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned.

More on Stocks for Beginners

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Emerging Canadian AI Companies With Big Potential

These tech stocks are paving the way to an AI-filled future, but still offer enough growth ahead for a strong…

Read more »

Young Boy with Jet Pack Dreams of Flying
Tech Stocks

Is Constellation Software Stock a Buy, Sell, or Hold for 2025?

CSU stock has long been a strong option for high growth, high value stocks. But are there now too many…

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

Asset Management
Stocks for Beginners

TFSA: 4 Canadian Stocks to Buy and Hold Forever

Thinking about what to buy with the new TFSA contribution space in 2025? These four Canadian stocks are worth holding…

Read more »

concept of real estate evaluation
Stocks for Beginners

2 No-Brainer Real Estate Stocks to Buy Right Now for Less Than $1,000

These two real estate sector-focused stocks have the potential to deliver strong returns on your investments in the coming years.

Read more »

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

stocks climbing green bull market
Stocks for Beginners

3 TSX Stocks Soaring Higher With No Signs of Slowing

Don't ignore stocks just because they look like they're at a high price. Instead, see exactly why they've driven so…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »