Warren Buffett Sold Barrick Gold Stocks: Should You Sell Gold Too?
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Well, it was quick. Warren Buffett bought an approximate US $ 565 million stake in Barrick Gold (TSX: ABX) (NYSE: ABX) in the second quarter of 2020. As of Berkshire Hathaway’s The 13F file revealed on Tuesday that it had completely exited the gold position by the end of 2020.
565 million US dollars is a parcel money to most people. However, as I pointed out in a previous article, “[I]It is too much to say that Buffett is bullish on gold. On the contrary, it is better to say that he is using gold as a hedge for his investment portfolio.
Barrick Gold made up just 0.28% of Berkshire’s stock portfolio at the time. So, it was clearly a hedge. As there was a marked improvement in global economies towards the end of 2020, aided by years of advancements in technology applications triggered by the pandemic, Buffett simply saw no reason to keep this coverage in the wallet.
Although Warren Buffett is known as a buy and hold value investor, there are times when he will hold investments for a short period of time. Buffett too cropped positions in Apple and several banks.
Equity investors should think for themselves in terms of temperament, financial goals, investment knowledge, risk tolerance and investment horizon.
This is a good lesson to avoid blindly following the movements of other investors as they are different from you and you would never know the true meaning of other investors when they buy or sell a stock.
Should you keep gold stocks in your portfolio?
If you bought gold stocks as a hedge against the pandemic like Warren Buffet did, you could sell, as many of the impacts of COVID-19 on the economy have lifted. In addition, the market is optimistic about the global deployment of the vaccine.
However, gold stocks move differently from stock indexes. The 10 year chart below illustrates how Barrick Gold stock tends to fall when the stock market rises and rise when the stock market falls.
Data by YCharts. A 10-year chart showing a comparison between the benchmark TSX: XIU and TSX: ABX.
The portfolio managers ensure that its portfolios are sufficiently diversified. Self-employed investors can determine whether or not it makes sense to have some exposure to gold in their portfolio.
As the chart above shows, it would be defensive to have gold stocks in your portfolio, if you believe there could be a substantial market correction.
Generally speaking, fund managers do not advise having more than 5% of your investment portfolio exposed to gold.
How is the Barrick Gold share doing?
Barrick Gold sold about 2% less gold and the same amount of copper in 2020 compared to 2019. However, its cash flow generation is expected to be higher due to higher commodity prices. In fact, the company will release its fourth quarter and full year 2020 results today, which will be revealing.
The gold stock has been trending down since August 2020 and has fallen by around 30%, which puts it in a good valuation for accumulation if you are looking for exposure to gold.
Analysts have a 12-month average price target of US $ 32.23 per share for near-term upside potential of nearly 55%, down from less than US $ 21 per share at the time of writing.
Based on its most recent quarterly dividend of US $ 0.09 per share, Barrick Gold stock also offers a yield of 1.7%.