Gold Miners Jump With Berkshire's Barrick Bet Fueling Outlook
Comment of the Day

August 17 2020

Commentary by Eoin Treacy

Gold Miners Jump With Berkshire's Barrick Bet Fueling Outlook

This article by Justina Vasquez and Aoyon Ashraf for Bloomberg may be of interest to subscribers. Here is a section:

Barrick Gold Corp. advanced the most since March, leading a surge in precious-metals miners after Warren Buffett’s Berkshire Hathaway Inc. added the company to its portfolio.

Barrick, the world’s second-largest miner of the metal, jumped as much as 12% and a Bloomberg Intelligence gauge of senior gold miners climbed after Berkshire on Friday reported a purchase of 20.9 million shares as of the end of the second quarter. Colorado-based Newmont Corp., the largest producer, also gained Monday, along with Kinross Gold Corp. and Harmony Gold Mining Co.

​Gold miners are benefiting as near-record bullion prices boost profit margins and help them lure back generalists who fled the sector years ago. In the past, Buffett, the billionaire chairman of Berkshire, cautioned against investing in the metal because it’s not productive like a farm or a company. The filing shows moves made by Buffett or his two investing deputies, Todd Combs or Ted Weschler.


Eoin Treacy's view

When the world’s most storied value/quality investor dumps banks and buys a gold miner it might not make a big difference to Berkshire’s bottom line but it sends an important message about where the company see’s opportunity. Investment in new greenfield mines has not been attractive for much of the last decade. Meanwhile demand is rising for a growing number of reasons, not the explosion in the supply of debt and competitive currency devaluation. That’s a recipe for a bull market.

At this point many of the larger gold miners are growing dividends and seeing their margins expand. The introduction of the all-in-sustaining-cost metric offers a useful window for investors to get an overview of where profit potential resides. Barrick’s AISC was $925 in the first quarter. Meanwhile the price of by-products, like copper, are also recovering. The more than halving of the oil price is an additional tailwind to profitability for all miners. 

The Gold Miners ETF’s reaction from its recent peak has, so far, been similar sized to the June range. A sustained move below the 200-day MA would be required to begin to question medium-term scope for additional upside.

Gold and silver also continue to firm from last week’s lows.

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