Wall Street Titans Turn to Gold

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Warren Buffett has earned his legendary reputation by being a value investor through his famous fund, Berkshire Hathaway.  He’s had a knack of picking shares that have fundamental value, not trendy momentum or growth shares.  Buffet is famous for saying "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."  When the 2nd quarter shareholdings reports, the sol called 13F’s, were released on late Friday we got to see who had done what and clearly Buffet is not yet seeing the fear as he bought very little in the quarter and offloaded a lot.  

That shouldn’t be a surprise as shares are nearing all time highs again despite the pesky fact of a recession.  However it was what Buffet sold and what he bought that should have investors paying attention.  He dumped big banks including JP Morgan Chase (by 61%) and some others such as Wells Fargo, and completely exited his shares in Goldman Sachs.  The market is reading this as his concern of the oncoming loan default and insolvency wave many are now expecting.

But it was what he added that had the weekend media aflutter, $565m worth of Barrick Gold shares, the world’s second biggest gold miner.  The message of dumping those managing fiat currency and buying those mining real money was not lost and the message it sent can’t be ignored.  Buffet has long been a critic of gold as it doesn’t yield or produce output, two of the cornerstones of his investment philosophy.  However even the so called Oracle of Omaha can clearly see what’s coming and buying shares in a miner at least helps mask his backflip.  This is the first time he has invested in gold and the gravity of that cannot be understated.  Buffet did however invest in silver before it last rallied in 2011 and it will be interesting when the Q3 13F’s are released to see if he has taken up a silver position now that the metal is on the move again.

These same 13F’s also revealed that the world’s biggest hedge fund, Bridgewater also increased its holdings of gold, adding more than $400m into gold ETF’s.  This increase takes Bridgewater’s holdings in SPDR Gold Trust to $914 million and iShares Gold Trust to $268m, totalling $1.183b of gold held by the fund.  The fund itself increased $1 billion in the quarter taking its total funds under management to an incredible $5.96 billion and notably taking gold’s share of the fund to 20%.

The fund’s founder, Ray Dalio has been vocal for some time as to the need for gold in a portfolio prior to what he called the paradigm shift and the coincidence of this and the growth in that fund are likely linked.  As he famously said:

"If you don’t own gold... there is no sensible reason other than you don’t know history or you don’t know the economics of it"