Price shoots up: Why Warren Buffett doesn’t like gold at all

Gold is currently a favorite of investors. Star investor Warren Buffett, on the other hand, doesn’t believe in investing his money in the precious metal. Basically it’s just a bet on fear.

The price of gold has raced to record highs and there is no end to the rally in sight. This begs the question: What would Warren Buffett do? The investor legend has never made a secret of his aversion to gold. Buffet explained this in detail in 2011 in one of the annual letters to the shareholders of his investment vehicle Berkshire Hathaway – the year when gold reached a new record high of around $ 1,920 per troy ounce.

Gold, troy ounce
Gold, troy ounce 2,285.70

“Gold is currently a huge favorite of investors who fear almost all other assets,” Buffett wrote at the time. However, the precious metal has two major defects: “It is not particularly useful and is unproductive.”

Buffett justified his reluctance with a comparison: From the gold stock at the time (170,000 tons) you could form a cube with a side of almost 21 meters – with a value of around 9.6 trillion dollars. The alternative: You could use this money to buy all of the US arable land and 16 times the oil company Exxon Mobiles – and still have a trillion dollars left over.

At that time, according to Buffett, the 400 million hectare agricultural area generated $200 billion a year, and the oil multinational earned $40 billion a year. “Can you imagine an investor with $9.6 trillion choosing Stack A over Stack B?”

“You can stroke the cube”

“A century from now, the 400 million acres of farmland will have produced vast quantities of corn, wheat, cotton, and other crops – and they will continue to provide these valuable crops,” Buffett wrote. Exxon Mobil, meanwhile, will have paid out trillions of dollars in dividends to its owners and also own assets worth many trillions more.

“And remember you have 16 Exxons,” Buffett continued. On the other hand, the amount of 170,000 tons of gold would remain unchanged even after a hundred years and still not be able to produce anything. The cube will bring neither interest nor dividends. “You can pet the cube, but it won’t respond.”

Buffett sees gold as having certain industrial and decorative uses. But the demand for it is limited and is not able to accommodate the global production of gold. “If you own an ounce of gold forever, you will end up owning an ounce,” Buffett said. “The idea of ​​digging something up in South Africa or somewhere else and then transporting it to the United States and… [Zentralbank] I don’t think it’s a great idea to store the Federal Reserve of New York.”

The multi-billionaire counts gold as one of the speculative investments that produce nothing – like gambling with tulip bulbs in the Netherlands in the 17th century. The buyers of these assets, Buffett said, buy them in the hope that someone else will pay more for them in the future.

For Buffett, the value of an investment depends on its benefits. Gold is fundamentally about betting on fear: “What motivates most gold buyers is their belief that the number of fearful people will increase.” The result: If people are more afraid in the future, you will make money. If they have less, you lose money.

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