GOLDMAN SACHS, BUFFETT AND GOLD…
In late July, during an interview with CNBC, the chief investment officer of private wealth management at Goldman Sachs made the following statement:
“Our view is that gold is only appropriate if you have a very strong view that the U.S. dollar is going to be debased. We don’t have that view…” Sharmin Mossavar-Rahmani
Is Ms. Mossavar-Rahmani not aware that the U.S. dollar has already been debased by ninety-nine percent? And, that gold at $2000 per ounce (a one-hundred fold increase from $20 per ounce) already reflects that debasement?
On the other hand, Mossavar-Rahmani is correct in saying that gold isn’t a great deflation hedge. She also said that the case for higher gold prices hinges on the expectation that current U.S. dollar weakness will lead to something more severe; including a possible change in its role as the world’s reserve currency.
Since she does not share the expectation for severe U.S. dollar weakness going forward, it is not difficult to understand why she says gold has no role in the portfolio of wealthy clients:
“So all this excitement and brouhaha about gold is not something that we buy into.”
DIFFERENCE IN OPINION AT GOLDMAN RE: GOLD
However, others at Goldman are “buy(ing) into” gold. Prior to the interview with CNBC, a team of commodity analysts at Goldman raised their 12-month forecast for gold to $2300 from $2000.
They cited “a potential shift in the U.S. Fed toward an inflationary bias against a backdrop of rising geopolitical tensions, elevated U.S. domestic political and social uncertainty, and a growing second wave of COVID-19 related infections”.
The expectation of higher prices for gold may or not be correct. Only time will tell. But the reasons cited for the expected higher prices have nothing to do with gold. They are false fundamentals. (see Gold – A Simpler And Better Explanation)
Maybe the experts in Goldman’s commodity department should have consulted Mossovar-Rahmani before increasing their price target for gold. She is correct that “gold is only appropriate if you have a very strong view that the U.S. dollar is going to be debased.”
In this case, we might add the words ‘further’ and more ‘rapidly’ to the end of her statement. Those qualifying terms are necessary because gold’s price at $2000 fully reflects the effects of inflation that has already occurred.
Its price only moves higher after cumulative losses in U.S. dollar purchasing power become apparent; gold is not forward-looking.
The difference in opinion by fellow team members and experts at Goldman Sachs provide a backdrop for some other news about Goldman and gold.
BUFFETT SACKS GOLDMAN; BUYS GOLD
Investor Warren Buffett sold his entire position in Goldman Sachs stock during the pandemic earlier this year. This was in addition to large sales of his holdings in other bank stocks such as JPMorgan Chase, Wells Fargo, and PNC.
That might not seem too unusual on its own, given expectations of large potential loan defaults on the horizon. Buffet also sold significant positions in other industries and is known for being a highly cautious investor.
The curiously interesting fact emerging from all of this is that Warren Buffet, while he did add to his positions in a few stocks, he added only a single new stock to his portfolio – Barrick Gold.
If gold’s price goes higher, that increase will make winners of Goldman’s commodity team and those who follow them. But will that increase be reflected in a higher price for Barrick Gold stock? Not necessarily; so we cannot say for sure whether Mr. Buffett would do well with his investment.
If the price of gold declines, then the apparent winner would be Goldman’s private wealth investors; at least for the fact that they would not own an asset that is declining in price.
On the other hand, Buffett could be deemed a winner if Goldman’s stock declines along with other bank stocks, even if Barrick goes down.
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!