It turns out Warren Buffett is bullish on the long-term prospects of Barrick Gold. So much so that the Oracle of Omaha took a position in Barrick in the third quarter of last year. He’s since eliminated his position. However, his venture into gold is worthwhile noting for investors considering precious metals investments today.
Here’s why I think Buffett was on to something with his previous add.
Gold miners extremely undervalued
On a historical basis, gold miners are cheap. And by cheap, I mean dirt cheap, right now. Historically, gold miners are trading near three-decade lows relative to the price of the shiny metal. This has enticed many deep-value investors to this sector. Buffett happens to be one of many such investors.
Barrick is one of the highest-quality, large-cap gold miners among its peers. It’s one of the largest gold miners in the world, for that matter, and has world-class reserves the likes of which its competitors gawk at.
Accordingly, among the entire gold mining sector, Barrick is looked to as a core holding in many funds. Unsurprisingly, given where gold miners trade today vs. the price of gold, many value investors have chosen Barrick as their investment of choice in this sector. I anticipate this sentiment will continue, as investors seek out the best bang for their buck in a competitive sector.
There’s no better time to hedge than right now
That’s right, even Warren Buffett hedges from time to time — or, at least, has bought companies with negative correlation to his overall portfolio.
Amid trimming some highly cyclical names, Buffett’s foray into gold was particularly interesting given his previous position on precious metals. He’s repeated on a number of occasions why he thinks investing in a pile of shiny metal doesn’t make sense. This appears to still be the case, as the Barrick add looks to have been a short-term trade. However, his views on hedging appear to have changed, making future positions in gold miners remains a possibility today. A year ago, nobody would have thought such a position would ever materialize.
Gold has been long considered the “gold standard” (had to do it) of hedges. Gold tends to do well when equities underperform, or when the U.S. dollar depreciates (usually coincidental).
So, by buying gold, investors may be able to hold onto more of their portfolios, trim less, and enjoy the same advantages.
The market is overheated, but no one truly knows when the music will stop. Some believe the party can continue going for another decade. However, being cautious when others are greedy is one of Buffett’s main mantras. Thus, considering Barrick Gold at a time like now makes sense.
Like this top pick? Here are 10 more we think might be on his radar right now:
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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 Chris MacDonald has no position in any of the stocks mentioned.