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In his excellent investing primer in Fortune (an excerpt of his forthcoming Annual Letter), Warren Buffett devotes a few paragraphs to gold and the fools who worship it.
He also explains why gold is generally a poor investment, even if its price in dollars goes up from time to time (as it has over the past decade).
If you molded all the gold in the world into a cube, Buffett says, it would be about 20-metres per side. This is about 1 metre shorter (and considerably wider) than a tennis court. As Buffett observes, it would fit comfortably in the middle of a baseball infield.
The value of all that gold at today's prices, Buffett observes, would be about $10 trillion.
As for its merit as an investment, Buffett observes the following:- The cube of gold will produce nothing in the next hundred years (or, for that matter, thousands of years).
- The cube of gold will not pay you interest or dividends, and it won't grow earnings.
- You can fondle the cube, but it won't respond.
Over the next hundred years, your cropland and Exxon-Mobils would produce trillions of dollars of dividends (the size of which would be adjusted for inflation), and you would still have them at the end of the century, at which point you could probably sell them for vastly more than the $9 trillion you bought them for.
So, which investment would you choose?
For the cube of gold to be the smarter investment, Buffett observes, you would have to be convinced that you could persuade someone else that the cube of gold would be an amazing investment at your asking price. Because that's the only way you can ever make money in gold—if there's someone out there who is willing to buy it from you for more than you paid for it (and pay enough to offset the costs you have incurred from storage and insurance in the meantime).
Meanwhile, your cropland and Exxon-Mobils would likely keep throwing off tons of cash even if the market for them completely dried up.
Thus, Buffett has no doubt about which investment will return more over the next century—or which one he would choose.
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47 Comments
Buffet actually provides two good argument for the "gold standard" . There is not much of it - it's rare. And it lasts a long long time. Gold backing versus fiat money? I'll back gold. Silver versus gold? Back silver. With 1000's of applications and good value, it will soon outshine everything. Just because Warren Buffet is rich doesn't make him right. He's been wrong about gold for a decade now. Since 1971 when that criminal Nixon removed the gold standard, the US never produced a balanced budget since. The dollar's purchasing power has been smashed. Gold standard = sound money; Fiat money = inflation.
ReplyOh yeah, take Buffet at face value. What's the angle? There was a time Buffet held substantial gold, and he made the effort to say so, and impressed that he was long on it only to unload shortly afterwards. Buffet influenced the price as best he could to suit his ends. He boosted the price - a classic play then. Why rubbish gold now? Again to influence the price! You can bet this insurance salesman has been and continues to buy gold at this time - a classic play.
ReplyBuffet is either disingenuous or has gone senile. Gold is money. You keep money when there is deflation in that particular currency. If you look at DOW JONES measured in ounces of gold it is clear that it has been a deflation in that form of money. So besides gold having gone up in us dollars (and just about every other currency) it also clearly shows it has been a better investment class than shares. In fact precious metals has now for a decade been the best investment class.
ReplyI got gold finger today while wiping
1 Replyradium,,i thinks about $25,000 per gram
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