Billionaire Warren Buffett's 'chilling' comments on gold prices

With a fortune of more than 160 billion USD and being a “model” investor for many people, every move of Warren Buffett in stocks and other assets always receives the attention of the market. However, he is famous for being an investor who is not interested in gold.

Warren Buffett has repeatedly expressed his views on the precious metal, and his view is not very positive. Simply put, he does not think gold fits into his value investing strategy, which is to choose stocks that are trading at a discount to their current value.

With an unfavorable view of gold, the market was surprised when Berkshire Hathaway invested in Barrick Gold in the second quarter of 2020, spending about $560 million for about 21 million shares of this gold mining giant.

Billionaire Warren Buffett is famous for being an investor who is not interested in gold.

At the time, many people thought Buffett had changed his mind about gold. However, many opinions were raised to the contrary, some said that this investment was made by Buffett's associates, while others pointed out the difference between investing in gold and investing in a gold mining company. Others argued that Berkshire's stake in Barrick was relatively small compared to the group's other investments.

Berkshire then lost its long-term position in Barrick and liquidated it after just two quarters—long enough to reap the rewards of gold’s big boost during the Covid-19 crisis. Buffett may have also been drawn to gold’s role as a safe haven during times of uncertainty.

According to Buffett, gold has two major disadvantages: it has few uses and it does not generate additional wealth. Gold is useful in some technological production and for decoration, but the demand for these purposes is limited and it does not generate new production. Meanwhile, if you own an ounce of gold for a lifetime, it will eventually be just an ounce of gold.

Buffett also pointed out three types of investments that “never produce anything,” and ranked gold as number two. The investing legend said in his 2011 letter to shareholders that people who buy these assets expect others to pay more for them in the future, but “it will remain soulless” with the belief that others will need gold in the future.

Gold advocates have disputed this view, arguing that the purpose of gold is not what it can produce. Instead, gold's value comes from the fact that it is a safe haven asset in times of crisis.

Frank Holmes, chief investment officer at US Global Investors, said Buffett had the wrong view on gold. “Buffett has always been negative on gold, thinking that gold does not bring returns. He was completely wrong, since 2000, the price of gold has been continuously increasing,” he said.

In a 2009 interview with CNBC , Buffett took a slightly softer stance on gold. He questioned whether gold should be part of a value investing strategy, but he had no predictions about where the price of gold would go. Still, the Berkshire boss said, “One thing I can say is that gold doesn’t do anything except look at you.”

This view is in stark contrast to Buffett's view of stocks like Coca-Cola or Wells Fargo, which he says will generate money, and lots of it. "It's better to have a goose that keeps laying eggs than a goose that just sits around," he explains.

Buffett also pointed out that people only buy gold when they are scared. “But you have to hope the market gets more scared than it is now,” he said. “If they get scared, you make a lot of money.”

In 2011, he said that if all the gold in the world was worth $7 trillion, it would be equivalent to more than 400 million hectares of farmland in the US and seven ExxonMobils, and still have $1 trillion left over. Therefore, he said he would not choose a 20.5 meter gold bar and ignore all the assets mentioned above.

For Buffett, the value of an asset is tied to its utility. Without a specific use, gold has neither. Interestingly, Buffett does not apply the same view to silver, which he sees as having “dual” utility, meaning it is both a precious metal and an industrial asset.

(Source: CAFEF)

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