Here Come the Institutional Investors—How This Shift Could Overwhelm the Gold Industry Jeff Clark, Senior Analyst, GoldSilver.com
AUG 24, 2020
Editor’s Note: It wasn’t just Warren Buffett’s company buying $565 million worth of Barrick Gold last quarter. That was the big headline, but institutional investors buying gold last quarter was more widespread than just Berkshire Hathaway’s purchase. And it’s just getting started. The research below shows just how much cash could flood into the gold industry.
It blew up my phone. It was after market hours on Friday, August 14 when the news broke that Berkshire Hathaway’s 13F showed it had purchased 20.9 million shares of Barrick Gold, the largest gold miner in the industry.
It caught many gold investors by surprise, myself included, since Buffet has been so negative on gold—even though he bought a miner one wouldn’t do that if they thought gold was headed lower anytime soon.
But as it turned out, the bombardment on my phone about Buffett’s Big Buy was just the tip of the golden iceberg; he was not alone. This is significant, because by all appearances the shift into gold (and silver) by institutional investors has only just begun—they don’t typically take large positions for just one quarter, but invest in what they believe is a trend.
This demanded some research. Just how big could this shift be? How much cash could realistically enter the gold market from these types of investors? And what might it do to the price?
The results of our research below is compelling—if you’re a gold and silver investor. If you’re not, or you don’t have a meaningful stash, consider what impact the whale of institutional cash might have on the minnow-sized gold market… and if it might be time to pick up some ounces in the next dip.
First, let’s review what some institutional investors did last quarter…
The Shift Has Started
Unbeknown to many investors, in addition to Warren Buffett, a plethora of hedge funds entered the gold (and silver) market in the second quarter.
> Ray Dalio’s hedge fund Bridgewater Associates poured over $400 million into gold ETFs in Q2. He increased holdings in GLD (SPDR Gold Trust) from $600.6 million to $914.3 million, making it one of the largest investors in the fund and Bridgewater’s second-most valuable holding. The company also increased its holding in the iShares Gold Trust from $176 million to $268.4 million, making this investment its sixth biggest stake.
> Hedge funds Mason Capital Partners, Sandell Asset Management, and Caxton Associates all initiated new positions in GLD last quarter.
> The Reserve Bank of India (RBI) announced it plans to increase its gold reserves to 10% of its total reserves, from the current 6.5%. How much is this? The RBI has approximately US $540 billion in cash… 3.5% of that equals $18.9 billion, which equates to 9.45 million ounces… which is 56% of all the gold bought for investment last year.
> Though central bank gold buying this year is probably slower than 2019’s banner year, the central banks in Kazakhstan, Turkey, Mongolia, India, Cambodia, Qatar and Russia were all buyers last month.
> And then there was this big shocker… BlackRock, the world's largest asset manager ($7.4 trillion AUM), was the second largest buyer of SLV shares in Q2, purchasing 5.4 million shares. As you can see, it wasn’t just Buffett’s $565 million purchase of Barrick last quarter. Numerous other hedge funds apparently see what Warren sees: an environment ripe for big profits from gold.
But there’s a bigger impact that Berkshire Hathaway’s entrance into the gold market will have: the message it sends to the market…
His purchase removes the “gold is bad” stigma for investors, essentially opening the door for more generalist investors to move into this industry. Buffett is one of the most well-known investors in the world, so other investors are sure to follow.
By the way, we can’t help but point out that gold has outperformed Warren Buffett’s stock over the past 20 years. From July 2000 through July 2020, Berkshire Hathaway shares have risen 433%, but gold has risen 610%. I don’t kid myself that he read my open letter to him, but isn’t it interesting that you and I invested in gold ahead of one of the world's most successful investors?
By all appearances, institutional investors are just now starting to enter the gold market. If other funds follow, what kind of cash could enter this tiny sector?
Hold on to your coffee mug, because the numbers you’re about to see are staggering.
Institutional Cash vs. Gold Bullion
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