Warren Buffett buys gold! Should you?

Warren Buffett has just bought stock in one of the world’s biggest gold miners. Paul Summers thinks most private investors should get some exposure too.

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When Warren Buffett buys something, the market sits up and takes notice. Investors get even more intrigued when that purchase relates to an asset he once had no time for.

Buffett buys gold

On Friday, it was revealed that the greatest investor since the Second World War had bought gold. To be precise, the Sage of Omaha has added the world’s second-largest miner of the shiny stuff — Canada-based Barrick Gold Corp — to Berkshire Hathaway’s portfolio in Q2.

In all, Buffett bought 20.9m shares, or 1.2% of the company. Based on the closing price at the end of last week, this amounts to a stake worth $564m.

That may be a drop in the ocean for Berkshire Hathaway (market value: $500bn) but it still represents a significant development.

Why significant?

Buffett’s purchase of Barrick matters because the master investor has previously never rated gold. The precious metal, he once said, “doesn’t do anything,” thereby violating his rule to only invest in stuff that’s actually useful.

The fact he’s now willing to invest in a company like Barrick when its shares are already at a seven-year high shows just how much the pandemic has impacted his strategy and where he now sees value. 

And who can blame him? With more money-printing likely in the US (further devaluing the dollar), investors will be looking for ways to hedge against inflation. This will likely push the price of gold even higher (beyond the record high hit earlier this month), which also increases the profit margins of those who mine it.

In addition to this, the shiny stuff also tends to rise in value when stocks crash, which could still happen in the event of a second Covid-19 wave later in 2020. We’re certainly not in the clear yet!

Should I buy Barrick too?

Following Buffett into Barrick is certainly an option. Just know that you’ll probably end up paying a far higher price than he did.

Unsurprisingly, Friday’s news sent the miner’s share price rocketing in after-hours trading. As word of Buffett’s deal continues to spread, I wouldn’t bet against it going even higher this week. 

Another thing worth mentioning is that any UK investors wanting to buy US shares must first complete a form with their broker before doing so. 

An alternative way of getting exposure to the miner is via a fund. The iShares Gold Producers UCITS ETF is one example.

Despite having 55 stocks in its portfolio, just over 9% of this passive fund’s assets are tied up in Barrick.

The only company it has more exposure to is Newmont — the world’s biggest producer of the precious metal. The fund has an annual charge of 0.55%. It’s up 37% year to date.

Other stocks to consider

If you’d rather stick to large, London-listed stocks however, there’s always the option to buy stakes in FTSE 100 miners Polymetal International and/or Fresnillo instead.

Polymetal has nine gold- and silver-producing mines across Russia and Kazakhstan. Fresnillo is the world’s largest producer of silver but also the second biggest gold miner in Mexico. If you’d bought either stock during the market crash in mid-March, you’re probably very close to doubling your cash by now. 

If you agree with Buffett that demand for gold is likely to rise for the foreseeable future, there could be even more gains on the way.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers owns shares in iShares Gold Producers UCITS ETF. The Motley Fool UK has recommended Fresnillo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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