Why Warren Buffett decided to buy a gold miner

Gilded stock picker Warren Buffett has added his name to the long list of investors backing gold with a $565m (£430m) stake in Canadian miner Barrick Gold.

Berkshire Hathaway, his investment company, bought around 1.2pc of the company which sent its share price up over 10pc when the news became public.

Barrick Gold is the world’s second largest gold miner after it merged with Randgold Resources in 2019. Its covers 13 countries and it mined 5.5 million ounces of gold in 2019.

The gold price has been on a roll this year rising 32pc to more than $2,000 (£1,500) an ounce.

The combination of money printing from central banks and bulging government spending has raised fears of inflation and gold is also seen as a hedge against rising prices due to its limited supply.

It is considered a “safe haven” asset and store of value in times of economic uncertainty while a fall in the value of the dollar, which the precious metal is priced in, also increases its value.

Mining company share prices tend to track the price of the metals they mine but with more gusto. They run even higher in when prices rise but can fall much faster when they move downwards.

They are also vulnerable to political risks, such as strikes or nationalisations, which can adds to the uncertainty of owning them compared to simply buying the commodity.

Mr Buffett is no fool when it comes to analysing companies. Barrick's underlying earnings per share more than doubled year-on-year last week on the back of higher gold prices and consistent gold output in spite of coronavirus-related disruption.

Emilie Stevens, of fund shop Hargreaves Lansdown, said: “With the gold price continuing to rise there’s really only one way Barrick’s profits are going."

However, Mr Buffett latest investment has raised some eyebrows. The Sage of Omaha, as he is known, has mocked precious metal investors in the past for buying "unproductive" assets which do not create anything.

He is famous for his ownership of iconic brands like banking group Wells Fargo or Coca-Cola and adopting a "value" approach to investing, where he buys companies shunned by other investors.

With over 70 years as a professional investor, onlookers should not be surprised to see Mr Buffett move into new investment areas. He has always been willing to adapt his investment approach. 

While once he shunned technology stocks for being out of his area of expertise, he bought Apple shares in 2016 for the first time and the iPhone-maker is now around 40pc of his stock holdings.

He also sold all his American airline shares this year, saying "the world changed for airlines and we wish them well".

Mr Buffett’s investment has sparked a rebound in the gold price and gold mining shares this week after it plummeted 5pc last week.

While Canadian companies dominate the gold world, there are a number of London-listed specialists whose share prices are rising this week.  This includes British gold and silver specialist Fresnillo, up 3pc.

Telegraph Money has picked four London-listed companies that would benefit from rising gold and silver prices.