Making sense of Warren Buffett's comments on gold

Posted By Dick Sterling
April 18, 2013


Everyone knows he's no fan of gold as an investment. Buffett isn't a hard money guy. He prefers equities --- which represent ownership in something productive, real, active. Here are two statements made by Warren Buffett in interviews he's given:
"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. Whereas, you know, Coca-Cola will be making money, and I think Wells Fargo will be making a lot of money, and there will be a lot - and it's a lot - it's a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that."
And this one:
"You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what it's worth at current gold prices, you could buy - not some - all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?"
I would respond to Buffett's comments this way: Gold is money. It's meant as a store of wealth. It's not meant to replace equities, nor bonds, nor real estate speculations. Fiat currency doesn't meet the requirements for real money, and that's why many of us hold gold.

This is how gold has been viewed in all major cultures for thousands of years. Gold is designed to function as money, that's what it does.

Much of the world still understands this. Indians hoard gold because they view it as real money, even if their civil authorities don't. If Warren Buffett told them to buy shares in Coca-Cola rather than hold gold bullion, they'd probably laugh or scowl. When you view gold as money, you don't view it strictly as an investment. You don't say "Hmmm, shall I buy shares in Coke or should I buy a gold coin?" Rather, you use gold coins as a store of wealth. Silver works too, to an extent.

The day will come when the world returns to this view --- its historic view. Gold is the plumb-line. When equities or bonds are cheap relative to gold, you invest in them. But they don't replace gold, nor are they an alternative to gold. Gold is money.