While it’s true that gold, as a precious metal and even as a commodity, has lived off its “golden days.” Even though it’s known as hard cash around the globe and it holds its value no matter where you take it, the shiny metal doesn’t hold power and sway it used to when kingdoms used to wage war over it.
But every once in a while, when the stock market crashes or goes through a correction, people feel the need to revert to this tangible asset. The interest around gold mounts, and its value, along with the market values of the companies associated with it, rises. Usually, it’s just a phase, a temporary fluke.
And even though Buffett advises against letting temporary market movements guide your investment decisions, he “indulged” in gold investments as well.
Warren Buffett never really liked gold, but during this market crash, he opened a relatively small position in the Canadian mining company Barrick Gold (TSX:ABX)(NYSE:GOLD). The company saw its value spike in September, but it has come down a long way since then. Buffett slashed its position entirely just after a few months, and now he has divested himself entirely away from the company.
Buffett and gold were never a match made in heaven, and people still speculate as to why he invested in the mining company in the first place. Maybe this market crash was very different from the others, and Buffett wanted to try new things, or perhaps he believed that Barrick might become a good long-term holding but later thought otherwise.
In any case, if you want to do things the “Buffett-way,” you might consider selling gold or gold stocks before it devalues further. But not every gold company follows the typical gold pattern of shining only during market volatility periods and crashes.
Abitibi Royalties (TSXV:RZZ) has a significantly better track record compared to Barrick when it comes to growth. The stock has grown over 800% in a little less than a decade, and for the last five years, the company offers a compound annual growth rate (CAGR) of 42.29%. The relative security and one factor that might be the cause of its continued growth and dissent from the growth pattern of most mining companies is that it focuses on royalties.
The company has a robust balance sheet, with assets over 4.6 times the liabilities. While 2020 was a bit rough for the company’s earnings, the stock isn’t seeing a downward movement quite as sharp as other gold stocks are experiencing.
If you want to buy gold just because of the possibility that it would spike it sees during market volatility, then wait for a second market crash (if you believe one is about to come). Buy just before the gold started recovering for real, and wait for the spike.
If history is any indication, the stock might peak when the market is in the midst of recovery and then come down from there — o you can simply opt for gold stocks that keep growing even when the market is strong.
Speaking of Warren Buffett's relationship with gold...
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