Warren Buffett: Should You Load Up on Gold in September?

Warren Buffett’s big bet on gold may be overstated, but Barrick Gold Corp. (TSX:ABX)(NYSE:GOLD) is an undervalued and quality company.

| More on:
Gold bars

Image source: Getty Images

Late last year, I’d suggested that the spot price of gold could get to $2,000/ounce. I would like to credit my clairvoyance, but at the time I did not predict that there would be a global pandemic that would shake our societal foundations. Shocking, I know. Gold bugs are often the subject of derision in the investing community. Warren Buffett, an investing legend, has questioned the viability of gold as a store of value. However, Buffett’s company shocked onlookers this summer.

Warren Buffett: The newest gold bug?

In August, Warren Buffett’s company Berkshire Hathaway added a $562 million stake in Barrick Gold (TSX:ABX)(NYSE:GOLD). Some analysts were quick to point out that this move could have been triggered by one of Buffett’s lieutenants. Barrick is one of the largest gold producers on the planet. Even if we assume that the move came from Buffett, we should not view this as a monumental change in strategy.

Warren Buffett has always held that the best bet is on the United States economy. That has certainly not changed with the addition of Barrick Gold. His top five holdings include U.S. giants like Apple, Coca-Cola, and American Express. Berkshire’s Barrick holding is tiny in comparison to its larger bets.

Why gold has floundered in recent weeks

The news that Warren Buffett bought Barrick caused gold to stir the next day, but it has since calmed down. It was trading around $1,970/ounce in the early morning on August 31. Shares of Barrick Gold have dropped 2.8% month over month as of close on August 28. Gold has stuttered in part due to positive momentum for the global economy, particularly in Asia and Europe.

There is significant uncertainty in Canada, as government programs begin to wind down. Meanwhile, the 2020 presidential election looms in the United States. Whichever candidate comes out victorious, it appears that aggressive partisanship will only intensify in the months and years ahead. These conditions are bullish for the yellow metal.

Three golds stock to follow Warren Buffett’s lead

In Q2 2020, Barrick Gold reported adjusted net earnings per share of $0.23 per share — up 44% from the prior year. Moreover, the company achieved strong cash generation and operating cash flow in excess of $1 billion. The company’s excellent balance sheet and earnings momentum are some of the reasons Barrick was likely attractive to Warren Buffett.

Shares of Barrick last had a price-to-earnings (P/E) ratio of 11 and a price-to-book (P/B) value of 2.3. This puts Barrick in solid value territory relative to industry peers.

Kinross Gold and Kirkland Lake Gold are two more Canadian gold producers to keep your eye on. Shares of Kinross have surged 89% in 2020 as of close on August 28. Its stock also has a favourable P/E ratio of 12 and a P/B value of 1.9. Kirkland Lake Gold has been a top performer on the TSX over the past decade. Its shares have climbed 22% so far this year. This company has a fantastic balance sheet. Moreover, it also offers solid value with a P/E ratio of 18.

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 Ambrose O'Callaghan has no position in any of the stocks mentioned. David Gardner owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short September 2020 $200 calls on Berkshire Hathaway (B shares).

More on Investing

Various Canadian dollars in gray pants pocket
Dividend Stocks

Buy 1,334 Shares of This Top Dividend Stock for $100/Month in Passive Income

Investing in high dividend TSX stocks such as Atrium Mortgage can help you create a low-cost passive-income stream in 2024.

Read more »

potted green plant grows up in arrow shape
Dividend Stocks

2 Stocks With Dividends That Just Keep Growing

Two large-cap stocks whose dividends keep growing are better, safer options for income-focused investors.

Read more »

edit Businessman using calculator next to laptop
Tech Stocks

Which TSX Stock Is Best to Buy Today? 

The stock market is going green with optimism over hopes of economic recovery. You can benefit from this rally with…

Read more »

Close up of an egg in a nest of twigs on grass with RRSP written on it symbolizing a RRSP contribution.
Dividend Stocks

2 Top Canadian Dividend Stocks for RRSP Investors 

No matter how much you save, you may wonder if it is enough to retire. These dividend stocks can give…

Read more »

Money growing in soil , Business success concept.
Dividend Stocks

Want Fast-Growing Passive Income? Here are 3 Long-Term Dividend Stocks

Looking for some fast-growing passive income options? Here are three that can provide for decades which belong in your portfolio…

Read more »


Have the Stomach? 2 Promising Growth Stocks for Aggressive Investors

Invest in these two high-growth stocks if you have the stomach to tolerate high risk for the potential of high…

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

A 4.7% Dividend Stock That Pays Monthly Cash

An outperforming real estate stock paying an attractive yield is ideal for investors desiring monthly cash dividends.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

TFI Stock Is a Top Stock to Buy Right Now, But Only if You Believe This 1 Thing

TFI stock is a top choice on the TSX today, but the company will need to continue demonstrating margin improvements…

Read more »