Why is Warren Buffett wrong about gold?

By skyfall on Tue, Apr 29, 2014 - 1:02pm

I'm curious to hear your guys' insights on Warren Buffett's take on gold, what he wrote about in his 2011 letter to shareholders.  He makes a sound argument for NOT owning gold.  Is his reasoning wrong? 




skyfall's picture
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james_knight_chaucer's picture
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I think gold is SHTF

I think gold is SHTF protection. Jim Puplava recommends having a maximum of 20% of your wealth in gold. I think he is right. Warren Buffett is never likely to have his savings 'bailed in' like the poor people of Cyprus. If they had had gold instead of money in the bank, they would be laughing now.

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I suspect his publicly stated opinion may be a red herring. The lower the price of gold, the cheaper it is for him to buy. The latter part of the article is facile and disingenuous. There is a big difference between gold and tulips.

redcloud's picture
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Buffet in context

I agree with Buffet's thought experiment about gold, but it's out of context with the real world.  His scenario assumes that price discovery functions well, that the government isn't pumping trillions of dollars into the economy, and that one can spend the majority of ones time following the market so as to invest well.  Unfortunately none of those things are true for me nor for most Americans.

Yes gold isn't productive; it mostly increases in value according to how screwed up the system becomes.  It's SHTF insurance, as someone else stated.  Buffet doesn't need SHTF insurance because even in a SHTF scenario he'll be OK.  IBM, Exxon, American Express, and other companies he invests in aren't going to go completely bust.  They could lose 80% of their value and Buffet would still be a billionaire.  I'm never going to have so much invested in equities that an SHTF scenario wouldn't wipe me out.  So I choose gold.  Especially in a situation where almost everything else is vastly overpriced.

Lastly, what would Buffet stand to gain by touting gold?  Nothing.  His wealth derives directly from the system as it stand now.  If people flee equities in favor of gold he loses money.  He might be a very nice guy, and I applaud his philanthropy, but at bottom he's part of the financial elite.

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