Negative Points of Buffett Buying Gold-Mining Stocks

In mid-August, it was revealed that Buffett bought gold-mining shares this Q2. As gold prices hovered around US$1,571.80-1,785.78 at that time, the investment of Warren Buffett is still profitable at present prices. This episode occasionally reminds me of a story nine years ago.

The story happened in 2011, when gold prices eased back after hitting the all-time high of $1,920 on September and closed the year at $1,562.92. Generally, gold prices in the year rose by 12% while the Canadian Barrick Gold Corp, the world's largest gold-mining stocks, decreased by 14%. According to records, some small-scale gold-mining stocks even lost as high as 40% at that time, which made many prominent investors suffer a great deal from these stocks, and even masters such as Soros and Paulson were not immune.

This story from nine years ago sheds some light on the fact that traders shall not blindly jump into the market as even best investors like Soros cannot get a golden touch in gold markets. Long-term gold traders should consider gold ETFs rather than gold-mining stocks as the trends of gold prices and gold-mining stocks are not necessarily synchronized.

In Q2, Buffett's Berkshire Hathaway added gold-mining stocks in its trading list for the first time in its history, and reduced, or even sold out financial stocks at the same time. Gold prices climbed to $2,015 in the wake of the news but fell to $1,902 afterwards as no further support available. It is obvious that there were major players selling gold at a high price level which was pushed up by the news, with the sold amount large enough.

Buffett used to be a well-known anti-gold investor who has repeatedly stated that gold was not worth holding for long. The reason is that gold pays back no interest but requires storage charges, while stocks do pay back interest income. In my opinion, the situation that gold purchase becomes popular among investors who have never bought any gold or even are against buying gold is just similar to what described in Wall Streets famous saying: when the shoeshine boys talk stocks it was a great sell signal in 1929. The reason is that people who shouldn't trade stocks also trade stocks, reflecting that a bubble has appeared in the stock market.

In addition to the trend of the greenback, traders should also pay attention to the development of vaccines around the world. Besides Russia, many countries in Europe and America are expected to claim approval of vaccines, which will certainly hamper gold prices.