tl;dr: The headlines proclaimed that Warren Buffet bought gold. Turns out, he bought stock in a gold mining company. Either way, it’s the same impact.
On the dining room table as we sat down for dinner was that day’s Wall Street Journal. The glimpse of the headline led me down the wrong path.
I thought it said “Buffet buys gold.”
“Whoa, if Buffet thinks the most valuable use for Berkshire Hathaway’s cash is in an asset that generates no yield at all, we’re in a bad place.”
Turns out I overreacted, sort of.
Picks, Shovels, and the Environment
Ever the investor, turns out he is just running the Levi’s jeans play on the gold the market.
Buffet had purchased stock in Barrick Gold, the largest miner.
Where’s the Gold?
But, the supply of gold is dwinding
“We are definitely past peak gold,” said Mark Bristow, chief executive of Barrick Gold Corp., GOLD -0.30% the world’s second-largest gold miner by market capitalization.Gold Is Flying High, but Getting Harder to Mine: Miners have benefited from a gold price rally but face higher costs and tougher projects ahead.
He estimates that the new metal added to miners’ reserves since 2000 replaces only half of the gold they mined in that period.
So why is Buffet buying?
There’s a great video of Buffet talking about money printing, but I can’t find it right now. He’s as bewildered as the rest of us.
Buffet is anticipating more and more investor demand for gold as government money printing machines work non-stop.
From an environmental perspective, the damage is the same. The growth in the value of the mining company, its shares, and the price of gold will lead to more exploration.
This price action, like in any other asset (e.g. Bitcoin), will attract further attention as people start to sense FOMO on the gold front.
This will lead to the question of “if I am missing out on the gold push to new heights, what am I really missing out on?”
And the answer is inflation.
Anecdotally, ask anyone buying or selling houses in suburbs if there is asset inflation.
But the real inflation that hits most people is in places like the grocery store (look at your receipts) and other areas like childcare. See these humbling charts.
It’s slowly dawning on people that inflation is a real possibility, which feeds the narrative on gold, which leads to gold prices increasing, which leads to higher stock prices for gold mining companies.
And then Warren Buffet cashes in. As usual.
But he’s cashing in because he knows, like Ray Dalio, that “cash is trash.”
If there’s a limited supply on one side (gold) and there’s an unlimited supply on the other side (cash), what do you think will continue to happen?