Could Buffett Buy 130 Million Ounces of Silver Again? / Commodities / Gold & Silver 2020
Earlier this week, precious metals markets got a surprising Buffettbounce.
Legendary investor Warren Buffett isn’t often associated with gold– at least not in a positive way. In the past Buffett has made derisivecomments about the monetary metal. He once quipped that gold “has no utility.”
A perpetual optimist on the U.S. economy, Buffett by nature doesn’tlike the message that is sent by higher goldprices. He has likened investing in gold to “going long on fear.”
Well, the Oracle of Omaha, as he is known, seems to be reluctantlybracing for a return of fear in the markets. His Berkshire Hathaway holding company recently dumped shares of U.S.banks and went long a major gold producer.
News of Buffett’s acquisition helped send the mining sector sharplyhigher on Monday. It also stirred discussions in the financial media about thegold trade.
CNBC Anchor: We want to hit on the hottopic of the moment, which is gold and the gold ETF here. Gold miners arespiking on very heavy volume here after billionaire investor Warren Buffett'sBerkshire Hathaway firm revealed he's bidding on Barrick Gold. That's very,very interesting.
RT News Anchor: Warren Buffett, one ofthe world's richest men, is selling off his investments in banks like Wells Fargo,JP Morgan, and you know what he's doing? He's buying up gold. Why? Begs thequestion, doesn't it? What does Warren Buffett know that you and I don't know?
Some say Buffett’s investing acumen isn’t what it once was. His performance has lagged behind the S&P500 in recent years.
But Buffett isn’t aiming to outrace the stock market on the upsidethese days. By raising cash and taking out a stake in a gold miner, he issetting himself up to weather the next bear market in equities.
According to a famous Warren Buffett investing maxim, rule numberone is ‘don't lose money.’ Rule number two is ‘don't forget rule number one.’
Buffet has good reason to fear losing money in the stock market atthese levels. The current divergence between sky-high U.S. stock values and acontracting U.S. GDP raises alarm bells among followers of Buffett.
The ‘Buffett Indicator’ as it is known in Wall Street circles takestotal stock market capitalization and divides it by total GDP. Stocks are currently trading at 1.7 timesGDP. That’s 70% above the historical average – fully in bubble territoryaccording to this indicator.
So, Buffett has good reason to dial down his exposure to thefinancial sector and obtain some counter-cyclical assets such as gold equities.Of course, mining companies are still vulnerable to economic risks and are morevolatile than gold bullion itself.
With mining production of gold down 15% year over year, investmentbuying going gangbusters, and the Federal Reserve vowing to depreciate the U.S.dollar at an accelerated pace, it doesn’t take an oracle to grasp why goldtraded up to a new record high recently.
Buffett may personally own more gold than he lets on publicly. He may also be thinking about acquiring somesilver.
Back in the late 1990s, Buffett’s firm purchased a gigantic physical silver hoard of roughly 4,000 tons or 130 million troy ounces. Were he to make asimilar purchase today – assuming he could even find that much physical silverreadily available for delivery – that would certainly move the market.
Because most of the silver produced by miners is immediatelyconsumed by industry, available above ground inventories are scarce. Silvercoins and other minted bullion products are even scarcer – as reflected bypremiums shooting higher and remaining elevated due to an increase ininvestment demand.
A far scarcer metal – platinum – is currently off the radar of mostinvestors, including even most gold and silver bugs. But contrarians and WarrenBuffett-style deep value investors should consider adding some platinum totheir hard asset mix.
Platinum is more than twenty times rarer than gold. It is so rarethat all of the platinum ever mined could fit into a room measuring 25 feet by25 feet. It is also distinguished by being the second most dense metal on earthbehind its platinum-group cousin osmium.
Platinum used to be considered more precious than gold. For most ofmodern history up until the past few years, it commanded a higher price. Thesedays, platinum trades at a 50% discount to gold.
With global mining production of platinum group metals on thedecline, even a small spark of new investment buying could pressure platinumprices massively to the upside.
By Mike Gleason
Mike Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.
© 2020 Mike Gleason - All Rights Reserved
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