Warren Buffett created the conditions for Thomas Kaplan to become a billionaire when he unexpectedly bought silver in the late 1990s. More than twenty years later, the CEO of Berkshire Hathaway has unwittingly helped this mining entrepreneur again by making a surprise bet on a company specializing in gold mining.
The bet on silver
Buffett bought 130 million ounces of silver in the late 1990s, reviving this precious metal as an investment after oil tycoon Nelson Bunker Hunt and his brothers nearly gained a monopoly on its global market in 1979, leading to a collapse. of the price of silver the following year.
The news of Buffett’s unusual investment came shortly before Kaplan’s company went public and had the effect of stimulating demand for his shares. Kaplan then invested in an African platinum mining company and a Texas energy company, both of which were acquired in 2007, allowing him to pocket not one, but two piles of money.
“If Warren Buffett confers legitimacy on an asset, it changes the dynamics that affect investor perceptions,” Kaplan told Business Insider in May. “Silver used to be toxic. The toxicity evaporated ”.
“It was he who made silver safe again in the investment world,” he added. “I owe you a debt.”
Buffett bets on gold
“If history does not repeat itself, it certainly rhymes,” wrote Kaplan – who holds a doctorate in this discipline from the University of Oxford – in NovaGold’s 2015 annual report, paraphrasing a quote attributed to Mark Twain.
Kaplan, who chairs this exploration and development company as well as being its largest shareholder, didn’t realize how right he was until last week.
Buffett’s Berkshire bought a $ 564 million stake in Barrick Gold, despite the legendary investor being one of gold’s most notorious detractors. Barrick owns over 50% of Donlin Creek, a gold field in Alaska.
Who ever owns the rest of the field? That’s right: NovaGold.
“The fact that Buffett chose Barrick means that more eyes will be on Donlin,” Kaplan told Business Insider.
“For me, this is just as important news – and indeed more financially beneficial – as Buffett re-designated silver as a possible investment, forever eliminating the stigma associated with this precious metal from the Bunker era. Hunt ”continued. “The lightning struck twice,” he said. “At this point I have two, in big debt with him!”
Gold could enter the mainstream as an investment
Kaplan also explained how Buffett’s comments could transform the perception of gold by the broader investor community. The unspoken support of this great investor, coupled with a recent editorial by the acclaimed economist Mohamed El-Erian on the rise of this precious metal, will be considered a “huge ‘decontamination’ factor for gold,” said Kaplan.
“People at this point can feel safe about entering the water again … without being seen swimming without a suit when the tide comes out,” he continued, referencing a famous quote from Warren Buffett.
The price of gold has already increased significantly this year, recently exceeding $ 2,000 an ounce for the first time in history.
This “gold rush” reflects growing concern not only about the pandemic, but also about unprecedented interventions by central banks and governments to offset its economic impacts and shore up markets.
This metal is notoriously considered a safe haven in turbulent times and is considered precious due to its scarce availability, since the authorities cannot simply print more.
Investors are also betting that it can safeguard them from both inflation and deflation; that they can easily convert it into liquidity in a possible period of crisis; that it is a better alternative than government bonds, which generate almost no return; and that it may allow them to reduce their exposure to a depreciating dollar.
It is entirely possible that Buffett will speak ill of gold in a future interview and attribute the investment in Barrick to one of his collaborators. But Kaplan can boast for now that he is the unlikely beneficiary of two of Berkshire’s number one less discounted investments.