Should Warren Buffett Continue To Hold That Gold Stock He Bought?


Gold bar close up

Macro view of a shiny golden bar. Fine gold ingot close up. Financial success, business investment … [+] and wealth concept. 3D illustration


It made news earlier this year when Berkshire Hathaway

revealed the purchase of Barrick Gold stock. Warren Buffett and Charlie Munger are not known as gold bugs in the global stock-buying community, so there was a sense of shock to see a mining operation had been added to their portfolio.

In fact, Buffett had been negative on the yellow metal going so far as to say that 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.”

Now that it’s been a few months and the initial shock has worn off, how is the stock looking for the best known value investment team in the world? Gold and the precious metals equities have taken a hit in September. Is it enough that the Omaha investors might be having second thoughts?

Let’s study the price charts.

Gold on the weekly price chart looks like this:

gold silver

Gold weekly price chart, 9 25 20.

The price of gold remains in an uptrend despite this week’s sell-off — at least, on the weekly time frame. The move upward off of the March, 2020 lows is quite dramatic. The metal has moved so far above its Ichimoku cloud that it was inevitable that some mean reversion would take place. In other words, the big selling was not all that surprising.

Barrick Gold on the weekly chart looks like this:

gold metals

Barrick Gold weekly price chart, 9 25 20.

The gold equity purchased by Berkshire Hathaway earlier this year is already quite profitable. Depending on what price levels the buys took place, some of them may actually be doubles. Not bad for the old school value investors. Barrick remains in an uptrend even after the recent dumping — it’s well above the Ichimoku cloud. As with the underlying metal, the stock had reached a level so far above the trend that mean reversion of some kind was likely.

Barrick Gold on the point-and-figure chart looks like this:

gold metals

Barrick Gold point-and-figure price chart, 9 25 20.

After the March, 2020 low, this point-and-figure analysis shows the stock managed to break out above the previous resistance level of 22 with great force. After hitting a new 52-week high of 31, the recent selling has taken Barrick back to just below 28. Note the the blue line represents an uptrend and that the price remains above it.

Although, it’s likely that Buffett and Munger spend more time looking at balance sheets and income statements, they seem to have managed some decent market timing on this position — even taking into consideration the selling in the sector that showed up in recent sessions.

There are no guarantees that the price of the barbarous relic will remain in an uptrend — or that the common stock of Barrick Gold will keep trending upward. So far, though, the great value investors seem to be on the right track.

I do not hold positions in these investments. No recommendations are made one way or the other.  If you’re an investor, you’d want to look much deeper into each of these situations. You can lose money trading or investing in stocks and other instruments. Always do your own independent research, due diligence and seek professional advice from a licensed investment advisor.

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