Does Warren Buffett’s short honeymoon with gold signal you to sell yours?

Does Warren Buffett’s short honeymoon with gold signal you to sell yours?

NEW DELHI: This may perhaps be the shortest love story for an investor of the calibre of Warren Buffett, who has reiterated many times in his career spanning eight decades that the holding period for a stock should be forever.

Buffett-led Berkshire Hathaway has sold $317 million worth of shares of Canadian miner Barrick Gold Corporation barely after a couple of quarters of buying them. The decision to sell the shares was as surprising as the decision to buy them.

Buffett has not shied away from ridiculing those who invest in gold, which he believes is a non-productive asset. So, his decision to buy shares of a gold miner, though not exactly similar to buying gold, made headlines in August last year, when Berkshire made the holding public.

On hindsight, the decision to sell the stock could be justified, as Barrick Gold Corp on Thursday reported a 50.7 per cent drop in quarterly profit, hurt by lower production at its joint venture Nevada Gold Mines and at the Pueblo Viejo Mine in the Dominican Republic.

Prices of the yellow metal have been moderating over the past few weeks, and improving economic conditions around the world does not bode well for the yellow metal. Now that Buffett’s honeymoon with gold is over, should you too trim your gold holdings?

The most pragmatic answer is, no, unless your gold holdings are more than 5-10 per cent of your total portfolio, in which you would need to rebalance the portfolio in favour of other assets, say analysts and financial planners.

“We cannot go by what Warren Buffett is doing. He is a big-time guy and has his own thought process. What he does to his portfolio need not necessarily be what we do with our portfolios,” said Suresh Sadagopan, Founder & Principal, Ladder7 Financial Advisories.

Sadagopan said gold’s role in a portfolio is not to create wealth. So, one should not tinker with the allocation. “Yes, there is an economic recovery going on, and gold may not do very well, which is the general thesis. But I have a point that having a certain amount of gold in a portfolio is always good as a risk diversifier. It can stabilize returns on the portfolio,” he said.

Sadagopan said the best way to hold gold is via sovereign gold bonds, as it is a paper asset and there are tax benefits. Plus, it generates 2.5 per cent returns every year, unlike other options.

Gold prices are down about 18 per cent from the all-time high levels of August 2020 when it crossed above Rs 55,000. The near-term outlook of analysts tracking the commodity is not encouraging either; they believe the yellow metal may hover around the current price level of Rs 46,000.

But the love for gold as an investment option has grown over the past few months, going by the data released by mutual fund body Amfi. While gold ETFs received net inflows of Rs 431 crore in December, it was even higher at Rs 624.87 crore in January, 2021. From January 2019 till January 2021, the category received a robust net inflow of Rs 48,159.4 crore.

Vidya Bala, Founder of mutual fund research firm PrimeInvestor, said gold is there to protect a retail investor’s portfolio from bouts of volatility.

“The need to protect your portfolio from the volatility in equity has not gone away, if one had allocated it for this purpose. For some, whose gold holdings have swelled due to price fluctuations, it should be trimmed through rebalancing,” Bala said.

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