Warren Buffett, despite his extraordinary investment success, has a rather famous and long-standing love/hate relationship with precious metals.
Maybe it started with his dad– Congressman Howard Buffett of Nebraska– who, as a staunch advocate for the gold standard, argued to his colleagues on Capitol Hill that “paper money systems have always wound up with collapse and economic chaos.”
Warren himself acquired a record-setting 128 million ounces of silver back in the late 1990s… which he later sold at a profit in the early 2000s.
But to listen to him talk about precious metals these days, he’s always negative.
Buffett often quips that if you took the world’s entire supply of gold and melted it together, it would form a cube of about 68 feet (~21 meters) per side and be worth around $9 trillion.
With that same $9 trillion, you could buy every share of Apple, Disney, Google, Microsoft, JP Morgan, Exxon Mobil, all the farmland in the United States, all the developable land in Manhattan, and still have more than a trillion dollars left over.
This is Buffett’s central argument: gold doesn’t produce anything. So it’s much better to invest in a productive asset like a business, farmland, etc.
Sure, I’d rather own a profitable, productive asset than a pile of metal.
But Buffett is completely wrong to compare gold to productive assets… they’re apples and oranges.
Gold isn’t an ‘investment’. It’s an insurance policy against paper currencies will lose value over time. So a MUCH better comparison for gold is CASH.
Using Buffett’s same thought experiment, would an investor with $9 trillion rather have all that money sitting in a bank earning 0%? Or buy all the productive assets I mentioned above?
Clearly it’s more attractive to own productive assets than cash sitting in a bank.
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