Barrick Gold (TSX:ABX) Falls Into Bear Market Territory Amid New Vaccine Hope

Barrick Gold Corp. (TSX:ABX)(NYSE:GOLD) just fell into bear market territory following news that Warren Buffett had cut his stake by nearly 50%.

| More on:

Barrick Gold (TSX:ABX)(NYSE:GOLD) is under pressure, with shares falling into bear market territory (a 20% peak-to-trough decline) following new COVID-19 vaccine hopes and Warren Buffett’s latest disposition of just over 40% of his stake. Warren Buffett’s Berkshire Hathaway had just bought Barrick stock just months prior, so it may have come as a surprise to see the Barrick stake, which was already small, be slashed, rather than added to.

Warren Buffett: All that glitters wasn’t gold

With the pandemic’s end in sight following November’s slate of good vaccine news, I’ve been urging investors not to follow Warren Buffett into Barrick Gold stock, as it would have left investors at risk if gold prices were to fall amid rising certainties with the vaccine timeline.

“The day Pfizer pulled the curtain on its incredible vaccine data, a massive weight was lifted from the shoulders of this market. Combined with a more favourable than expected U.S. election result (Joe Biden and no Blue Wave), and I think it’d be a wise idea for gold investors should look to take some profits off the table and for Buffett followers to ditch their holdings in Barrick Gold while they’re still ahead,” I wrote just days before it was announced that Berkshire had dumped +40% of its stake in the last quarter.

“While it’s always a smart idea to have some exposure to precious metals, many investors may be in danger of overweighting themselves to the alternative asset that could be overdue for a pullback on the recent injection of certainty into this market.”

Time to follow Warren Buffett and take some profits

Fast forward to today, and Barrick gold is in a bear market, with no bottom in sight, as investors steer away from “safety” plays and into the value stocks that have been hardest hit by the COVID-19 impact. With gold prices at the higher end of the spectrum, I wouldn’t rule out a steep decline in the price of gold back towards its mid-cycle levels at around US$1,300.

Such a scenario would serve up steep declines for holders of gold and shareholders of the gold miners, even the best-in-breed ones like Barrick Gold, which has been experiencing remarkable profitability numbers of late.

Fellow Fool Kay Ng wrote last month that it was time to follow Warren Buffett into gold amid profound uncertainties and opened up the possibility that the Oracle may be open to adding to his relatively small stake in the name at the time.

As it turned out, Berkshire is taking profits on its stake. I don’t think the decision to get into gold miners was Warren Buffett’s decision in the first place. As I noted in a prior piece, it was probably one of his associates, given the Oracle of Omaha’s prior distaste for the shiny metal or the business of mining in general.

Foolish takeaway

If you followed Berkshire and Buffett into Barrick Gold, you’re probably sitting on some quick losses right about now. While gold stocks could be due for a near-term relief bounce, I’d continue to encourage profit-taking, as I believe the pandemic’s end could spark a drastic rotation back into “riskier” COVID-hit businesses in the face of a massive economic recovery.

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 owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends 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 December 2020 $210 calls on Berkshire Hathaway (B shares).

More on Investing

Piggy bank in autumn leaves
Dividend Stocks

CPP Pensioners: You’re Getting an Inflation Increase in 2025

CPP benefits increase with inflation, but this stock's dividends can outpace even that.

Read more »

Middle aged man drinks coffee
Retirement

Here’s the Average RRSP Balance at Age 54 for Canadians (and How to Boost Yours)

Are you on track for a comfortable retirement? See how your savings stack up.

Read more »

Circuit board with glowing lines
Investing

AI Investors: 2 ‘Sleep Easy’ Dividend Stocks to Buy in October

Fortis (TSX:FTS) stock and another top dividend play that could be a nice fit for AI investors looking to diversify…

Read more »

AI powered robotic finger touching human finger
Investing

What Is Artificial General Intelligence (AGI)?

An AGI system would be capable of thinking and reasoning the way that humans do without the need for human…

Read more »

coins jump into piggy bank
Dividend Stocks

Invest $15,000 in This Dividend Stock for $61 in Monthly Passive Income

Monthly passive income is well within reach, especially when you have a solid dividend stock like this on hand.

Read more »

RRSP (Registered Retirement Savings Plan) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

RRSP: 2 Reliable Canadian Dividend Stocks to Own for Decades

These stocks offer high yields and a shot at decent capital gains.

Read more »

concept of real estate evaluation
Dividend Stocks

Invest $7000 in This Dividend Stock to Make $600 in Passive Income

Looking to make monthly passive income? Timbercreek Financial (TSX:TF) stock's 8.6% dividend yield could turn into a steady stream of…

Read more »

woman analyze data
Investing

3 Top Stocks to Buy in October for Value-Hunting Canadians

Given their healthy long-term growth potential and discounted stock prices, I am bullish on these three TSX stocks.

Read more »