Buffett Dumps Bank Shares, Goes for Gold

Gold Volte-Face

Mr Buffett has long been critical of gold as an investment. One of his most famous quotes on the yellow precious metal is the following:

“It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head”

However, news that the investment guru has taken a $560 million position the miner Barrick Gold has precious metal analysts fizzing with excitement. It should be pointed out that Mr Buffett’s Berkshire Hathaway has not actually bought any gold, but rather shares in a company which specialises in gold and copper mining.

This $560 million stake, however, is a drop in the ocean for Berkshire Hathaway. To put this in perspective, the investment giant recently poured $9.7 billion into Dominion Energy’s gas transmission lines. Still, it represents a partial U-turn from Buffett’s position on gold in the past.

Banks Get Buffett’s Kiss of Death

Perhaps the biggest take from Berkshire Hathaway’s recent moves has been its slashing of stakes in big banks.

It had sold nearly 80% of its position in Goldman Sachs in the last quarter, and now it has dumped the rest of its stake with the investment bank. Buffett has also dumped a significant amount of shares in JP Morgan Chase and Wells Fargo, which has raised eyebrows with financial analysts. Berkshire Hathaway has also reduced its positions with financial service providers such as Mastercard, Visa and PNC Financial Services.

There was one notable exception to Buffett’s axe – Bank of America. The investment giant is continuing to pour money into this bank, which is now its second biggest portfolio position.

Warren Buffett and Silver

Mr Buffet is well-known for slating gold, but what is not well known is his interest in gold’s sister metal: silver. He bought over 110 million ounces of silver in 1997, at a time when the precious metal was priced at barely $5 an ounce and was seen as a toxic asset by most investors. The Berkshire CEO was attracted to silver because of its many industrial uses, and had bet on the metal’s price going up due to shrinking stockpiles.

He described that move as a ‘return to the past’, referring to his previous move in the 1960s. Back then, he had bought silver in anticipation of its demonetisation by the United States Government. In both cases, silver shot up in price some time afterwards: firstly with the Bunker Hunt Bubble in 1980, and secondly in the aftermath of the 2008/09 financial crisis.

Silver Price, 1960 - Present (USD)