Barrick Gold Stock: Is It a Good Investment?
Barrick Gold Corp. (NYSE: GOLD) is the second-largest gold mining outfit in the world. And amid economic uncertainty, Barrick Gold stock grabs the attention of a lot of investors.
And it’s not just gold bugs who diversify their portfolios with the precious metals sector when things go sideways. Even investors known for their anti-gold sentiment sometimes look to gold for stability amid uncertainty…
For instance, a couple of decades ago, Warren Buffett had this to say about gold:
“(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.”
Well, fast-forward to a pandemic-stricken market where uncertainty is the emotion du jour and it’s not the Martians that are scratching their heads. Apparently, the spike in gold prices was enough to pique the interest of the Oracle of Omaha… and his company, Berkshire Hathaway (NYSE: BRK.B), has finally gotten over its aurophobia (fear of gold).
Berkshire Hathaway picked up 20.9 million shares of Barrick Gold stock for a cool $564 million. While it was surprising in some ways that Buffett picked up Barrick Gold stock, it’s not like he started picking up actual gold bullion.
After all, when asked where he thought the price of gold would be five years down the line, he told CNBC, “I have no views as to where it will be, but the one thing I can tell you is it won’t do anything between now and then except look at you.”
Why Barrick Gold Stock Makes Sense
Like any smart investor, Buffett prefers to have the goose that lays a golden egg than just the egg itself. And that’s exactly what Barrick Gold’s stock is to a value investor like him…
You don’t need to pay anyone to insure it. You don’t need anyone to protect it. And it’s an easy way to make a play on the price of gold while collecting a modest 0.96% dividend yield along the way. Because if the price of the stuff Barrick is pulling out of the ground is going up, so are the profits and share price of Barrick Gold’s stock.
Now, the actual precious metal is well-known as a safe-haven investment. One of the many reasons is that it’s also used as a hedge against inflation.
You see, the price of gold is largely based on supply and demand. And the supply (despite the efforts of outfits like Barrick Gold) remains relatively constant. Even though more and more gold is being pulled out of the ground every day, there’s rarely a surge in supply. Because once someone buys that gold bracelet, it’s either worn or put in a drawer and off the market for years at a time.
On the other hand, when the Federal Reserve is printing money like crazy, it drives down the value of the dollar. And that can cause inflation… which is exactly what pushes some folks toward the safe haven of gold. Hence the increase in demand during volatile times and the subsequent spike in price… and the same goes for the Barrick Gold stock price.
But again, Berkshire Hathaway didn’t buy actual gold. It bought a stake in a mining company… one that’s share price ebbs and flows with the price of the commodity. And that’s just one way to invest in gold in a volatile market.
But is it the best way to invest in gold this year?
Well, we don’t know yet. But at the very least, it’s a relatively safe bet. Especially at a time when so many investors worry about what may come next.
So are Buffett and Berkshire Hathaway acting on fear?
It’s quite possible. And other investors may soon follow suit.
Gold Store of Value
Gold has managed to maintain its purchasing power for thousands of years. There’s an old adage that in ancient Rome a man’s toga cost around an ounce of gold, and today, it wouldn’t be hard to score a nice designer suit for the cost of an ounce of gold.
Gold has managed to maintain its value for more than 2,000 years. And it’s likely to do so for another 2,000 years. So when the markets are brimming with uncertainty, an investment in gold isn’t a bad hedge to make.
And investing in one of the leading gold mining companies poised to profit on increased gold demand is a smart value play. In uncertain times, following your fear isn’t always a bad bet. And if you’re hesitant to invest directly in Barrick Gold stock, you can use these top gold ETFs instead.
For the latest market analysis, sign up for the Investment U e-letter below. Our experienced Wall Street experts will help keep your portfolio healthy no matter which way the markets decide to turn.
About Matthew Makowski
Matthew Makowski is a senior research analyst and writer at Investment U. He has been studying and writing about the markets for 20 years. Equally comfortable identifying value stocks as he is discounts in the crypto markets, Matthew began mining Bitcoin in 2011 and has since honed his focus on the cryptocurrency markets as a whole. He is a graduate of Rutgers University and lives in Colorado with his dog, Dorito.