Warren Buffett Changed His Tune on Gold: Should You?

Warren Buffett has long been known to stay away from gold stocks, yet recently things changed. Here’s why you should be paying attention!

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Investing analysts everywhere received a shock when Warren Buffett recently changed a years-long decision to not buy gold. As Buffett put it in the past, gold doesn’t do anything. It’s just … pretty. Whereas silver can be used for anything from medical supplies to electronics, gold has very limited useful purposes. This makes it a bad investment, in Buffett’s view, besides when the market turns down.

Warren Buffett has a similar investing style to the Motley Fool in general, and that’s to buy and hold for years. That’s what makes gold a risky investment, even during a downturn. Sure, when the dollar goes down, gold prices go up. But as the dollar rebounds, gold prices will likely dip again. Because it’s not creating anything, it’s not like it can suddenly improve. It just simply exists.

Then the shock

That’s what made the investment in Barrick Gold (TSX:ABX)(NYSE:GOLD) recently so huge. Sure, it could have been one of the two investment managers that made the decision, but it’s still Warren Buffett’s name that will be attached to these large decisions. Of course, this likely means even Buffett has to admit it’s time to prepare for another market crash and potentially years of economic vulnerability.

But then, during the last report from Berkshire Hathaway, where the company announces what its bought and sold, it was announced that it sold 42% of its shares in Barrick. So, what’s going on? It’s likely that this happened because after the Berkshire announcement two quarters before, Barrick reached five-year highs. So, it only made sense to sell some of its stake and take the profits.

What should you do?

Barrick Gold is still trading at highs not seen since right before the last crash. However, it has trended down since peaking back in September. So, while it might be a good idea to invest in gold, Barrick looks a bit volatile at the moment to invest in. Instead, it might be better to see how it performs in the next month or so before buying a stake.

Instead, perhaps you can find another gold miner like Alamos Gold (TSX:AGI)(NYSE:AGI). The stock has steadily been increasing its revenue quarter after quarter, recently growing revenue year over year by 7.16%. Meanwhile, costs remain relatively flat during this time. The main driver, of course, is the rapidly growing price in gold. Yet this is while the company saw a decrease in a gold production because of COVID-19. So, once it’s back to full production, investors should see further strong revenue growth, along with dividend growth that recently went up by 33%!

However, long-term investors might want to take a page of Warren Buffett’s book and watch this stock carefully. It’s a great defensive stock during the economic downturn, but not necessarily for the long term. As I mentioned, once the economy rebounds, then gold might go down. And that means a company like Alamos could see a sudden drop in share price.

Bottom line

Gold is great but not forever. It’s a great stock to buy up defensively but could drop when the economy rebounds. But for now, if you hold a stock like Alamos, you’re likely to see some strong share growth, as the company continues to be a defensive hold during COVID-19 and beyond.

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. 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).

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