Market Update August 24, 2020

Buffet & Gold 

What is it?

Warren Buffet, otherwise known as the Oracle of Omaha, is arguably the most successful investor ever. He is the chairman and CEO of Berkshire Hathaway, a conglomerate holding company. The company invests in multiple companies throughout the world. In the course of their work, the company has to file the SEC form 13F to announce the holdings at the end of each quarter.

On August 14, Berkshire Hathaway’s June 30, 2020 filing was made public. Many noticed the new investment into Barrick Gold stock, a gold miner, which surprised many. It has been documented that Buffett is not a fan of investing in 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.”*

Why it matters?

The price of gold is priced in US dollars. As we explained over the last few weeks, the dollar has weakened over the past couple of months. Normally, a falling US dollar is a positive for the price of gold as more dollars are needed to exchange for an ounce of gold.

The price of gold is also sensitive to the interest rate market. As both the interest rate market and the dollar value have been dropping, it has created a good environment for the price of gold to rise.

However, the surge may be somewhat extended. Here’s a recent weekly chart of GLD, a gold trust.

Source: www.stockcharts.com 8/20/2020

Once the price action of a security zooms through the red area, which is displaying 1 to 2 standard deviations over the 200-week simple moving average of the price of the security, we believe that a correction may be looming.

The Warren Buffett news about his gold miner investment may be positive for the industry and gold prices in general, for long-term investment; however, our opinion is to be careful in the short-term as it may see a correction.   

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Sources:

*Dominic Frisby: “Why Warren Buffett’s purchase of Barrick shares is such a big deal for gold mining stocks.” 8/19/2020 MoneyWeek https://moneyweek.com/investments/commodities/gold/601836/warren-buffett-barrick-gold-shares-gold-mining-stocks

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