Warren Buffet, known to speak out against gold buying, has started finding the shiny metal more alluring. Shares skyrocketed after Berkshire Hathaway announced its acquisition of Barrick Gold on Friday and Gold Bugs around the world see a promising future.
There are several implications of this significant news. First, most investors follow a herd mentality, they follow the trend. And who draws more followers than the most famous investor himself, Warren Buffet. His announced investment in gold is sure to draw in the flock.
Then, we must consider Buffet’s long-term goals; Berkshire Hathaway is not interested in a quick flip. This is a pretty sure sign that Warren see’s the long-term value of gold stocks.
But let’s look beyond the obvious implications, and evaluate the bigger picture going on behind the scenes. A picture that is of far greater value to junior gold stock investors.
Berkshire Hathaway reported the purchase of 20.9M shares of Barrick Gold, a position valued at $563.5M. On the surface, this is a big number. Placed in the context of Berkshire’s $500B+ market cap and compared against Berkshire’s better-known holdings like Apple, Coca-Cola, and Kraft Heinz, it makes the exercise of accumulating the position seemingly tough to justify.
Consider this. The $563.5M purchase of Barrick shares creates a position that represents only 0.1% of the Berkshire portfolio; however, Berkshire now owns a 1.2% stake in Barrick Gold!
Let’s say Buffet really whets his appetite for gold and accumulates 10% of Barrick, that would still only equate to 1% of Berkshire’s overall value! Furthermore, Berkshire is just one of several thousand of institutions eager to place money and grow capital in global economy teeming with investible dollars in the trillions.
Let’s set this aside for the moment and compare oranges to apples.
Barrick is the golden orange. Berkshire Hathaway, only a single institution, is over ten times the size of the whole market cap of the world’s biggest gold producer. The apple – Apple Inc. – Berkshire’s biggest holding. The technology giant is four times bigger than Berkshire Hathaway.
Now, I am not saying that Barrick will surpass Apple Inc in size, instead, I am bringing to light the fact that there is an obvious discrepancy here. When institutional investors around the globe start buying gold stocks, not because they are concerned about inflationary pressures or FED policy, but simply because gold miners are about to throw off record free cash flow, what will happen to the sector?
The sector will boom like never before!
Gold bugs have been awaiting this moment, when an entire sector smaller than the market cap of one single technology company will explode in value as investors rush in. The time is now, Warren Buffet has fired the shot that starts the stampede.
Returns for junior resource investors is going to be unheard of. Since Berkshire Hathaway’s market cap trumps the entire gold mining sector, Warren Buffett cannot buy a meaningful position and hence, is at a major disadvantage, no matter how keen on gold he is.
It will be us little guys who can purchase junior gold stocks that will benefit most. Moreover, the advantage of purchasing through financing, with the benefit of warrants, will be huge. Warrants are an investors best way to capitalize on the riches to come.
And that means an investment portfolio including companies like Ximen Mining Corp, favorably positioned in the Canadian gold space, could pay off immensely for clever investors.
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