Buffett is buying gold!

By now you must have known that Buffett is buying gold! This is really historical news if you haven't realized!!😴

Why so? Well, Buffett is notoriously against investing in gold and has been talking down about gold for decades. I have even written some blogs in the past challenging Buffett's negative view on gold. Here is the one I posted in 2011. 

Buffett is dead wrong this time

You must think I have lost my mind. No, I'm not yet. Buffett is the most successful investor in the history, ever! I have full respect for Buffett and his words are usually just like proverbs, to which I listen very carefully. However, recently I have found Buffett is dead wrong on 2 aspects:

First is about his opinion on gold. Buffett does not like gold and he even thinks gold is just something useless.  In a speech to the 1998 Harvard graduating class he said:

"Gold, It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

I like Buffett's humor. But I'm just puzzled by his stubbornness that he still sticks to his opinion when gold's value has increased more than 5 times in the past decade. No any other asset has ever had such kind of performance to increase its value year after year consecutively for 10 years. Very likely this year will be its 11th year of success for gold.

The market was shocked by the news of course. His famous critic on gold cited in my blog was made in 1998 when gold was around $300. It is now around $2000 and you can count it to go up much higher from here over the long run. But even after gold had run up more than 500% since then, Buffett bashed gold again in  his 2011 Berkshire shareholder letter by stating:

[Gold is] currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative [emphasis added]. 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.

What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct.

Today the world's gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold's price as I write this – its value would be $9.6 trillion. Call this cube pile A.

Let's now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 ExxonMobils (the world's most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Beyond the staggering valuation given the existing stock of gold, current prices make today's annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. ExxonMobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

Admittedly, when people a century from now are fearful, it's likely many will still rush to gold. I'm confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.

Of course, it is too soon to read too much into Buffett's investment in gold at the moment, especially this may not be a total change of his view regarding gold. For one, Berkshire Hathaway is not directly buying gold but the largest gold mining stock, Barrick Gold and with a tiny portion in his portfolio (worth merely $625 million). So it is not equivalent to investing in gold as the inflation hedging asset. Then this buying may not be directly dictated by Buffett himself and more probably by one of his investment managers.  However, I still think this is symbolically important as Buffett must know the investment and he did not stop it, suggesting his view in gold has at least changed to some extent towards a more favorable tone. I guess any smart guys like Buffett must realize by now the black hole the whole world is digging right now, for which there is no any chance to fill in by any real means! At some point down the road, there will be a reckoning day and that will be the moment that the ultimate risk protective assets like gold will shine brightly when everything else is falling apart. With that, I won't be surprised to see more investment by Buffett in the gold asset moving forward.  Maybe in his next annual letter Buffett will write:  Anyone watching from Mars would be scratching their head why there are still so many people who don't understand the gold in the hole is so valuable!😜😇

 By the way, you must know by now that it is nearly a certainty that Wechat will be gone in the US. So very soon we have to communicate via other media. For DW investment group, we have set up a Telegram group. If you want to join,

Here is the link for "DW  谈股论金": https://t.me/joinchat/SgYa_xNrjTNHk9cS51ke0A.    

Importantly, you cannot join directly via Wechat. Two options:

1. When open the blog in Wechat,  点击右上角的三点，然后选在Safari 中open，然后点击the link and then join 
2. Or copy the link and paste to Safari to open and then join