Warren Buffett is selling gold. Should I do the same?

Warren Buffett’s sale of the Barrick Gold stake may be instructive on how to invest in the yellow metal now. 

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The sheen is coming off gold. Even though the yellow metal is still up by over 27% from last year, it’s down from last month. I think the ‘why’ of it is straightforward right now — gold is a hedge. As investor optimism about the future grows, the race towards safer assets like precious metals slows down. The fact that the Oracle of Omaha, Warren Buffett, has sold part of his gold investments recently only indicates further that the best of times for gold may be behind us. At least for the time being.

What Warren Buffett did

Investors around the world seek to emulate Buffett’s investing style. If Berkshire Hathaway, of which he is chairman and CEO, sells gold, many would think twice before buying it. And when the company cuts its stake in Barrick Gold by 40% after less than even one year of owning it, I reckon it’s even more notable. Buffett is known for long-term stock holdings and this is in stark contrast to what’s come to be expected. This is especially so when Barrick Gold has seen robust performance.

Why he sold gold

When Buffett sold airlines’ stocks earlier this year, he was pessimistic about the sector’s future. This led to a massive sell-off of the company’s holdings across big US-based airlines. There might be another explanation for this entirely, but if I think about this latest stock sale on similar lines, it can be speculated that he doesn’t expect the future of gold to be as bright as 2020 has been for it either. 

The Covid-19 vaccine expectation has definitely dented the outlook for gold. But even before that, the economy was already getting back on its feet, albeit in fits and starts. China, more than any other economy, is well on its way to recovery. It’s one of the largest country economies, whose growth is already increasing demand for products from industrial metals to luxury goods. The US, too, is expected to show healthy growth in 2021, which can further dent gold price. 

Should I sell gold now?

When I think of my own portfolio from this perspective, it looks like a good idea to book some profits while gold prices are still high. At the same time, I always like to hold some gold, preferably in the form of exchange-traded funds (ETFs), but only because I always like to have a few safe investments in case everything else falls to pieces. In other words, like Buffett, it’s a good idea to sell some and hold some. 

I think there are plenty of FTSE 100 stocks I’d buy today from the funds freed up by selling gold. That’s because their share prices are still low and their prospects just improved. Unlike Buffett, I’d consider airlines, for instance, even if he does lead the way on gold.  

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.

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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