Despite a slight decline in gold prices since mid-April, the price of gold continues to hover near historic highs during its long-term upward trend, rising by nearly a third since last autumn. In addition to continuous purchases by many central banks worldwide, the soaring gold price has also attracted investors from all over the world, especially from China. However, one of the world’s most famous investors, Warren Buffett, has never been fond of investing in gold. What comments has he made about gold, and will his views on gold change now?
Warren Buffett, renowned as an investor with a net worth close to $134 billion, is one of the wealthiest individuals globally. It is widely known that Buffett, who runs Berkshire Hathaway, has no interest in gold. Over the years, his stance on gold has been very clear – simply put, he believes that gold does not fit into his value investing strategy.
Amid speculation about Buffett’s dislike for gold, the market was indeed surprised when Berkshire Hathaway invested around $560 million to acquire approximately 21 million shares of Barrick Gold Corporation, a large gold mining company, in the second quarter of 2020. Many headlines claimed that Buffett had changed his views on gold, but there were also contrasting opinions – some suggested that it might have been someone else at Berkshire Hathaway and not Buffett himself who conducted the transaction, while others pointed out the distinction between investing in gold and investing in gold mining companies.
Ultimately, Buffett’s holdings in Barrick turned out to be short-term. Berkshire Hathaway exited the position just two quarters later, a period coinciding with a significant surge in gold prices due to the COVID-19 crisis.
Regardless of the reasons behind Berkshire’s actions, revisiting some of Buffett’s comments on gold remains intriguing. Three statements summarize Buffett’s views on gold.
In his 2011 shareholder letter, Buffett stated, “Gold… has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.”
In September of that year, the price of gold hit a historical high of around $1,920/ounce.
Buffett listed three investment classes in the letter, categorizing gold directly under the second – as “assets that will never produce anything.” He expressed that buyers of these assets are hoping that someone else will pay a higher price for them in the future, stating, “The asset itself will never produce anything—it will not pay you interest or dividends.”
Gold advocates strongly reacted to these remarks, emphasizing that the meaning of gold lies not in its ability to produce anything but rather in its function as a safe haven during times of crisis.
Frank Holmes, Chief Investment Officer of US Global Investors, responded directly to Buffett’s comment that an ounce of gold is always just an ounce of gold, calling Buffett’s view on gold entirely wrong. Holmes remarked, “Buffett has been negative on gold as his company doesn’t pay a dividend; his old arguments were gold doesn’t pay income… He’s dead wrong. Since 2000, gold has outperformed the S&P 500 Index by a multiple.”
“I have no views as to where it will be, but the one thing I can tell you is it won’t do anything between now and then, except look at you. “Back in 2009, during an episode of CNBC’s “Squawk Box,” Buffett explained.
Buffett believed in the power of stocks to generate significant returns. He illustrated, “Having a farm that is producing crops or a business that is producing goods or services… continuously turning out what I call economic goodies, it makes a lot of sense.”
The commentary concludes with another famous Buffett quote about gold, where he iterates in various ways over the years that extracting something out of the ground in one place and storing it in another, like at the Federal Reserve Bank of New York, does not constitute a remarkable asset in his eyes.
For Buffett, value is linked to utility, and gold, lacking specific utility, falls short in both aspects. Interestingly, this perspective does not apply to silver. Buffett previously invested in silver, believing its dual nature as a precious and industrial metal gives it utility and value.
In 2011, Buffett stated during a CNBC forum that holding gold assets is a way to be long in a fearful world, but one must hope that people will become more fearful in a year or two than they are now to profit. If people become less fearful, you will lose money, and gold itself will not produce anything.
He reiterated this viewpoint in his 2011 shareholder letter, emphasizing that most buyers of gold do so believing that the number of fear-driven individuals will increase.
Gold is often described as a hedge investment, wherein people buy gold during turbulent times to feel more secure and balance other areas in their investment portfolio.
Buffett acknowledged that this belief proved correct over the past decade. Nonetheless, in his 2011 shareholder letter, he noted that for the price of acquiring all the gold in the world, investors could purchase all of the farmland in the US, with money left over to buy 16 times the Exxon Mobil stock. The century’s return would be bountiful crops and abundant dividends. Alternatively, there would remain simply a large amount of gold.
While Berkshire’s investment in Barrick puzzled many, it does not necessarily signify Buffett’s shift in perspective on gold. Over the years, his attitude towards precious metals has remained consistent and appears unlikely to change anytime soon.
Nevertheless, numerous investors have recently been closely monitoring gold. According to APMEX data, gold reached a historical high of nearly $2,412/ounce on April 19, 2024. Although the price has since retreated to around $2,325/ounce, it has risen by over 30% since hitting a 52-week low of $1,833/ounce on October 4, 2023.
In some ways, the recent gold rush contrasts with the typical scenario. Business Insider reported that in the current economic environment, investors usually favor bonds and savings accounts over gold because interest rates remain significantly higher than the Federal Reserve’s target rate.
Billionaire investor David Einhorn, in a recent letter to Greenlight Capital investors, mentioned, “Perhaps the gold liquidation by western nations is nearing an end, while demand from eastern nations remains strong enough to drive the price higher.” Einhorn founded the company and currently serves as its Chief Executive Officer.
Business Insider highlighted that central banks of some countries have been “competing to buy gold,” with China being one of the largest buyers. China has been addressing prolonged economic stagnation, stock declines, and high unemployment rates.
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