Barrick and Buffett; Gold and Goldman

November 30, 2020
Analyst, Author, and Owner of Kelsey's Gold Facts

gold

Sometime after the end of the second quarter, news of Berkshire Hathaway's acquisition of Barrick Gold made headlines. Not known for a favorable opinion on gold, Warren Buffett surprised some people with his move. Also, the addition of Barrick Gold Corp to the Berkshire portfolio was noteworthy for another reason...

"...Warren Buffet, while he did add to his positions in a few stocks, he added only a single new stock to his portfolio - Barrick Gold."  

As significant as Buffet's entry into the gold arena is, news of Berkshire Hathaway's third quarter reshuffling prompted some confusion among observers and investors. The original stake of 21 million shares had been reduced by almost 9 million shares to a total of only 12 million shares at the end of September.

Warren Buffett is not a trader. He is a long-term investor. Maybe he realized that gold shares are not a good long-term investment for anybody. Or maybe he just changed his mind.

Below is a chart of Barrick Gold Corp that shows its stock price for the past twelve months...

Since the end of September, Barrick's price has dropped from 28 to 22, a decline of twenty-one percent. Most of the trading for the third quarter took place between 26 and 30 so 28 seems like a reasonable guess as to an average liquidation price; although it is possible that the average sale price could have been closer to 30.

If Buffett/Berkshire was proactive enough to buy Barrick shares in the very early stages of the second quarter, the acquisition price might have been as low as $18-20 per share. Hence, profits on the stock sold could be as much as $8-10 per share. That means a potential 50 percent profit for a short term trade of just a few months.

Seeing such a huge jump in any stock price for any reason might be enough to justify cashing in a long-term investment. Under reasonably normal conditions it could take several years to see similar price gains.

It is also possible that the average acquisition price could have been as high as 28, though. In that case, the round trip trade might have yielded no gain at all, or even a small loss. Nevertheless, selling Barrick in the third quarter still avoided the drop that is currently underway.

Bottom line: Selling Barrick stock last quarter locked in possibly several years of long-term gains and avoided potential short-term losses of between 21-29 percent.

GOLDMAN SACHS STAYS WITH $2300 GOLD 

The recent headline says "Goldman Sachs holding firm with $2,300 gold price". Before we talk further about that, here is an excerpt from a previous article...

"In late July, during an interview with CNBC, the chief investment officer of private wealth management at Goldman Sachs made the following statement:

"Our view is that gold is only appropriate if you have a very strong view that the U.S. dollar is going to be debased. We don't have that view..." Sharmin Mossavar-Rahmani

Prior to the interview with CNBC, a team of commodity analysts at Goldman had raised their 12-month forecast for gold to $2300 from $2000.

Since that time, the price of gold has peaked at $2060 in August and declined almost $300 per ounce to $1774 this past Friday, November 27th.

Now, the Goldman commodity team has reaffirmed their expectations and price target for gold at $2300 per ounce in 2021...

"In a report published Friday, the investment bank said that it is maintaining its 2021 gold price target of $2,300 an ounce as the global economy balances between positive news of potential vaccines for the COVID-19 virus and the near-term risks of further economic devastation."  See (  https://www.gold-eagle.com/rate/price-of-gold/

Who speaks for Goldman Sachs? Maybe that was the question on the mind of Warren Buffett when he sold all of his Goldman Sachs stock holdings in the second quarter and acquired his original new position in Barrick Gold Corp.

Whatever the reasons for liquidating Barrick stock that was only recently acquired, Buffet and Berkshire avoided a significant price drop which may grow larger in the near term.

(also see Goldman Sachs Gold;  Buffett Sacks Goldman)

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Kelsey Williams has more than forty years experience in the financial services industry, including fourteen years as a full-service financial planner. His website, Kelsey's Gold Facts, contains self-authored articles written for the purpose of educating and informing others about gold within a historical context. In addition to gold, he writes about inflation and the Federal Reserve.

Kelsey is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN'T, AND WHO'S RESPONSIBLE FOR IT and ALL HAIL THE FED! 

Kelsey Williams is available for private consultations, public speaking, and interviews at kwilliams@kelseywilliamsgold.com

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