For the past 20 years, famed investor Warren Buffett has repeatedly voiced his opinions on how gold is not a good investment. So how come Buffett’s Berkshire Hathaway invested in a gold mining company? Why would a staunch anti-gold advocate move toward gold stocks? The answer is more complex than you might think—but it does hold some answers for those deciding whether to invest in gold or not.
Why Buffett Previously Opposed Gold
Warren Buffett has been outspoken in his disdain for gold. Over the last two decades, the Berkshire Hathaway CEO has claimed that gold is a subpar, unproductive asset and investors would be better off just leaving it alone. In a 2011 letter to Berkshire Hathaway shareholders, Buffet claimed, “Gold…has two significant shortcomings, being neither of much use nor procreative.” He labeled gold as an asset that “will never produce anything.” His statements regarding gold seem to come from a place of personal preference. Gold has no place in his strategic plan of value investing. Buffet chooses not to invest in gold because he believes that stocks will almost always outperform gold.
Those who swear by investing in the gold claim that he has missed the point. They argue that investing in gold isn’t about the returns it produces, but how it can protect investors in times of economic uncertainty. Gold has been known as a hedge against inflation and other economic downturns while providing much-needed portfolio diversity. Unlike different forms of currency and assets, gold has maintained value throughout the years—and seems to act as a preservation of wealth, not so much an asset to make high returns off of.
Buffet’s Past Investments of Precious Metals
Despite being against gold investments, Warren Buffett has purchased his fair share of silver. Back in the late 90s, Buffett made a surprise move and bought almost 3,500 tons of silver. His prediction was that stores of silver would deplete throughout the years, thus driving up its value.
Throughout his years, it seems that silver is the only metal Buffett invested in. He invested in big names like IBM, Apple, Geico, and JPMorgan Chase—which makes Hathaway’s choice to add gold to their portfolio all the more curious.
What the Investment Into Barrick Gold Could Indicate
Because of Buffet’s anti-gold history, his company’s investment in gold shocked investors and companies across the nation. A filing released on August 14, 2023, shows that Berkshire Hathaway bought 21 million shares of gold mining company Barrick Gold, effectively spending around $563 million. Coupled with buying gold, the company simultaneously began selling bank stocks like Wells Fargo and JPMorgan Chase.
Some claims arose that the sudden investing decisions meant Buffett was “betting against America.” Others argue that Buffett was adjusting his stance to better fit the reality of the United States: the U.S. is still in a pandemic and U.S. leaders are practicing large-scale borrowing and money printing. Perhaps his surprising investment choice shows that he is finally purchasing gold to do what it was meant to do: protect wealth.
Other clues give further insight into the rationale behind finally investing in gold. Although Berkshire Hathaway has been selling Wells Fargo and JPMorgan Chase stocks, it has been buying Bank of America stock. The amount of money put into Barrick Gold is relatively small compared to other assets in Berkshire Hathaway’s portfolio. Also worth noting is that Barrick Gold is a mining company, not necessarily a gold company. Lastly, there is no way to know for certain that Buffett was behind the move to purchase gold. The Hathaway portfolio is largely managed by Ted Weschler and Todd Combs, two of Berkshire Hathaway’s investment managers. Neither Buffett nor his investment managers revealed who was mainly behind the Barrick Gold investment.
Overall, Berkshire Hathaway’s move towards gold is more nuanced than it appears. Warren Buffet himself did not invest in gold—his company invested in gold mining. Still, this marks the first time that Berkshire Hathaway invested in anything gold-related, which definitely signals a shift in Buffett’s gold stance. This also helps show curious investors that gold and gold mining could be worth investing in.
Should You Invest in Gold?
Gold has been a symbol of wealth for thousands of years, dating all the way back to 800 B.C. And now, in 2023, it still holds value for those who own it. Gold becomes especially popular during economic hardships as it has an inverse relationship to the U.S. dollar. The weaker the economy, the more valuable gold is. This is why many choose to invest in gold as a hedge against inflation, deflation, and other macroeconomic uncertainties.
Warren Buffet is right about this: stocks tend to outperform gold. However, this does not mean that investing in gold is a poor investment either. It just means that you probably won’t be making crazy profits. Gold does not go through dramatic depreciation, which is why investing in gold is seen more as a preemptive measure to preserve wealth. Consider the times the world is in as well. If the coronavirus pandemic continues, then more economic uncertainty is sure to ensue. This could make gold an appealing investment to help protect your wealth in case the pandemic keeps affecting the economy.
Along with gold holding its value throughout the years and helping protect inverter’s wealth against economic hardships, here are three more reasons you should invest in gold:
- Supply Constraints. Gold used to be sold often by global central banks, but this has greatly slowed down since 2008. Fewer gold sales along with a decline in new gold from mines mean that there is no increase in gold supply. In turn, this protects the value of gold from declining heavily.
- Increasing Demand. Gold plays an important role in cultures across the world. For example, India has an annual demand for gold in October, which is traditionally the wedding season for them. In China, gold is seen as a traditional way of saving, so the demand has been constant. And in the U.S. the demand for gold has been on the rise.
- Portfolio Diversification. Portfolio diversification is important because it helps maximize returns and protect against loss by reducing the volatility of risk. For instance, if an investment produces bad returns, chances are that another investment in your portfolio could produce enough returns to cover the losses. The key to successful diversification lies in having investments across fields and industries. This is why gold could also be a good addition to your portfolio.
As with any investment, make sure to think carefully about where you choose to put your money. Conduct the proper research by investigating sources online and considering the current market conditions. Click Here to learn more about the investment ideas and how to become a better investor.