The gold world in the past week has been buzzing with the news that Warren Buffett, the so-called ‘Sage of Omaha’, bought shares in Barrick, the world’s second-largest gold mining company after Newmont.
Buffett is seen as a ‘sage’ not just for his remarkable ability at stock picking (which has amassed more than $800 billion for his holding company, Berkshire Hathaway) but also because he makes Delphic-like pronouncements from the depths of Omaha, in Nebraska – coincidentally the birthplace of another rock, Marlon Brando.
Media responses to Berkshire’s investment in Barrick ranged from the lofty sneer (Buffett’s trades “look like everyone else’s, for once”) through the sceptical (“I don’t think this is a bet on gold”) to the excitable “Warren Buffett… goes for the gold”.
Why the shock?
Because, Buffett has said in the past, gold has no use: “It doesn’t do anything but sit there and look at you” and “if you own an ounce of gold now… you caress it for the next hundred years, you’ll have an ounce of gold a hundred years from now”. One could compile a short book of all the negative things Warren Buffett has said about gold in his 89 years.
Keep it in proportion
Buffett bought just a tiny amount of Barrick’s shares – not much more than 1%. Berkshire Hathaway has always stuck to the principle of ‘value investing’– looking for companies whose share price is unjustifiably low and which has a good chance of growing. Barrick has a good record of dividend payments and a cash balance of $3.7 billion as of the end of the second quarter of 2020. It is a classic Berkshire Hathaway investment.
But Barrick produces gold – copper too, but it’s best-known as a gold miner. And Warren Buffett has said that gold is useless.
Last year, Barrick produced 5 ½ million troy ounces of gold for a price of $894 per ounce – a profit margin of around $1,000 per ounce at today’s prices. Buffett, or his advisers, saw that Barrick is today a fantastic cash machine.
Can it, and the gold which is its bread-and-butter, remain that fantastic?
Chip off the old block
For an answer we need to consider another Buffett – Howard Buffett, Warren’s dad. He was an investor too, and also a politician – a four-term Republican Representative for Nebraska.
In 1948, when he was 45, Howard wrote a classic essay on gold, with the title “Human Freedom Rests on Gold Redeemable Money”. It’s worth reading in full, not least for its elegance. Howard was an avowed exponent of the gold-is-real-money idea. He saw the dangers of fiat (paper money created by governments as legal tender) clearly: “The paper money disease has been a pleasant habit thus far and will not be dropped voluntarily any more than a dope user will without a struggle give up narcotics… if human liberty is to survive in America, we must win the battle to restore honest money”.
In today’s world, it is all too easy to be criticised for belief in gold-as-money. The Wall Street Journal laughed at gold in 2015, calling it a “pet rock”, a 1970s craze that is trying a comeback.
Howard Buffett wrote his essay 72 years ago, when he was aghast at the US Congress setting a budget of… $37 ½ billion. As of the end of April this year, the US government had pledged to pump $6 trillion into its economy. It’s unlikely to stop at that.
In 1960, the US debt-to-GDP ratio, which is one way of calculating if a country can pay its debts, was 52.54%. Today the ratio is 136.6%, above Greece’s debt/GDP ratio of 127% in 2009, when Greece needed a bailout from the European Union.
In any case, we at Glint think that Warren Buffet is clearly wrong about gold being useless and his recent investments would suggest that he too has had a significant change of heart. With Glint, you can use gold as money once again – you can spend and save gold, and in September you will be able to start sharing and gifting it too, all through your Glint app. So, Warren, if you’re reading this, maybe we should have a chat about gold and how Glint is making it relevant again? Perhaps too, we could help re-acquaint you with your Dad, who it seems, knew a thing or two?
Watch out for our new P2P service in your Glint app. From the beginning of September, you will be able to share gold and other currencies with other Glint users through our super-fast and super-safe feature – Glint it!