If You Think Gold Prices Are High Now, See What Happens in the Coming Months & Quarters
Gold just got an endorsement from a major market mover. If you think gold prices are already high, wait and see what happens in the coming months and quarters. The yellow precious metal could go up a lot more.
Warren Buffett, a well-known value investor, has been one of the biggest opponents of gold.
For decades, Buffett believed that gold was useless as an asset in an investment portfolio, and that it doesn’t generate any value for the portfolio. Not too long ago, he had a change of heart.
Just recently, his firm, Berkshire Hathaway Inc. (NYSE:BRK.B), disclosed that it had acquired a $565.0-million stake in Barrick Gold Corp (NYSE: GOLD), one of the biggest gold miners in the world. (Source: “Warren Buffett’s Berkshire Hathaway Joins the Gold Rush,” The Wall Street Journal, August 17, 2020.)
Berkshire Hathaway is now the 11th biggest shareholders in the miner.
Looking at the amount of the purchase, one could say, “it’s just a $565.0-million stake in the company; it’s nothing big.” Surely, in the grand scheme of things, this is a small amount at a time when there are companies like Apple Inc. (NASDAQ:AAPL) that are hitting $2.0-trillion valuations.
Here’s the thing: Warren Buffett has a massive following.
His company buying shares in a gold miner is one of the biggest endorsements the gold market could get. This is super bullish for gold prices in the coming months and quarters. Berkshire Hathaway buying mining shares could trigger buying from other value investors as well.
Keep in mind, prior to all this, we already had big banks turning super-bullish on gold. This will provide investors with even more confidence in buying gold.
Where’s The Opportunity?
Now the big question: what could investors do?
Dear reader, first, know this: Berkshire Hathaway stepping into the mining sector is a game changer.
If we see a lot of buyers come in, mining stocks could be the best place to be. Mind you, not all miners are going to provide the same sort of returns.
I believe that, in the bull run in the gold market so far (between 2015 and now), big mining companies have already gotten a lot attention from investors. Certainly, their value could still go up, but it’s hard to see them perform as well as they did over the past few years.
Consider this: in 2015, Barrick Gold stock traded as low as $5.65. At the time of this writing, it trades around $29.75. This represent an increase of 426% over the past five years. Could Barrick Gold stock go up another 426% in the next five years? For that to happen, the price would have to go over $156.00. It’s hard to see that sort of price appreciation unless gold prices surge immensely.
I believe the opportunity could be among smaller mining companies.
A lot of small miners have been disregarded and overlooked, despite having great properties and amazing management. They could double or triple in value if gold prices continue to move higher and big investors remain interested.