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The American billionaire has shed his investments in several banks to invest in the gold producer Barrick Gold. A sign?
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The holding company of American billionaire Warren Buffett, Berkshire Hathaway
, reviewed its positions in the second half of the year. According to a statement to the US market regulator released on Friday, the group reduced its investments in US banks JPMorgan and Wells Fargo. He sold his stake in Goldman Sachs. On the other hand, he acquired 21 million shares of gold producer Barrick Gold
, valued at $ 563 million.
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“By getting rid of cyclical stocks like banks to buy mining stocks, he is betting on a negative reversal of the markets.”
Frank Vranken
Head of Strategy at Puilaetco
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This repositioning has raised questions on the financial markets. Because Warren Buffett has often criticized gold. “Is this a bearish market signal? Is Warren Buffett giving up on future gains in the US equity markets? The move is definitely defensive in nature,” said Frank Vranken, head of strategy at Puilaetco. “By getting rid of cyclical stocks like banks to buy mining stocks, he is betting on a negative reversal of the markets,” he adds. The strategist sees reasons for a market turnaround, with the Covid-19 pandemic continuing and the US presidential elections approaching.
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An attractive dividend
However, others don’t necessarily see a bearish sign in Warren Buffett’s move. Because in recent months, Berkshire Hathaway strengthened its positions in Bank of America. Mike Shedlock, analyst at Sitka Pacific Capital Management, believes that “Warren Buffett knows banks are having trouble with Covid-19. And Barrick Gold is paying a dividend.” The group recently raised its dividend by 14% to 8 cents per share. “In addition, Buffett has not reduced its shares in Amazon or Apple,” he adds.
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“Warren Buffett knows banks are having a hard time with Covid-19. And Barrick Gold is paying a dividend.”
Mike Shedlock
Analyst at Sitka Pacific Capital Management
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However, Barrick Gold is also facing issues related to Covid-19 at its Veladino mine in Argentina and a dispute at its Porgera mine in New Guinea, according to its statements when presenting its second quarter results. But the group benefited from the rise in gold since the start of the year, since in the second quarter, it generated gold at 1,725 dollars per ounce, an increase of 31% compared to the same period in 2019.
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An opportunistic gesture
Some analysts also believe that Warren Buffett wanted short-term betting on the mining sector due to soaring gold prices since the beginning of the year. Prices of the yellow metal have climbed 29% since January, and hit a record high of $ 2,075.47 on August 7. Since then they have retreated to $ 1951.45. Shares of mining companies also followed the trend of the yellow metal. Barrick Gold has gained over 58% since the start of the year. Analysts pointed out that mining stocks have “gone from the very bought stage to the very sold stage” in a short time, with the current decline in gold prices. For some, this decline could still continue in the short term. Kyle Rodda, analyst at IG Markets, says “the outlook for gold remains good, but the current correction still has room in the near term.”
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The price of Barrick Gold is linked to the evolution of the price of gold. And yet the stock trades at 25.23 times its earnings for the next twelve months, a acceptable valuation for the American billionaire, who loves cheap stocks.
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Furthermore, Warren Buffett’s gesture comes as during the Berkshire Hathaway general meeting, he had found that he had no idea which securities to buy in the markets.
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