Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Warren Buffet Misses the Point: Gold Is Money

  by    0   0

Warren Buffett has never been a fan of gold and has publicly disparaged the yellow metal on more than one occasion.  During his annual shareholders meeting earlier this month, he compared investing in gold and stocks, arguing that over the long term gold is an “unproductive asset” that “doesn’t produce anything.” So, why have it, unless you just want something to “fondle.”

But is Buffett really making an accurate comparison? Or is this a proverbial apples and oranges scenario?

We can classify gold in three ways. We can view it as an asset, a commodity or as money. Gold does exhibit characteristics of both assets and commodities, but ultimately, gold is money. When you look at things from that perspective, Buffett’s comments don’t make as much sense. I doubt you would ever hear him say “never hold cash because it’s an unproductive asset.”

Considering gold is money, perhaps a more accurate comparison is between gold and the US dollar. From that perspective, the yellow metal wins hands down.

Between January 1972 and March 2018, the purchasing power of the dollar dropped 84%. Even if you take short-term interest rate into account, the greenback’s purchasing power has gone up no more than 47%. On the other hand, the purchasing power of gold has increased by 394%.

As economist Thorsten Polleit explained in an article published on the Mises Wire, when we understand gold is money, it becomes clear Buffett’s explanation misses the point.

 Every investor has to make the following decisions: (1) I have investible funds, and I have to decide how much of it I invest (e.g. in stocks, bonds, houses, etc.), and how much of it I keep in liquid assets (cash). (2) Once I have decided to keep X percent in cash, I have to determine which currency to choose: US dollar, euro, Japanese yen, Swiss franc – or “gold money”. If one agrees with these considerations, one can arrive now at two conclusions: (1) I do not keep cash, because stocks offer a higher return than cash. However, many people are unlikely to follow such a recommendation. They keep at least some liquidity because they have financial obligations to meet. People typically also wish to hold liquid means as a back-up for unforeseen events in the form of money. Money is the most liquid, most marketable “good”. Anyone who has money can exchange it at any time – and thus take advantage of investment opportunities that come up along the way. 2) I decide to keep at least some cash. Anyone who has near-term payment obligations in, for example, US dollar, is well advised to keep sufficient funds in US dollar. Those who opt for holding money for unexpected liquidity requirements, or for longer-term liquidity needs, must decide what type of money is suitable for this purpose. One way to do this is to form an opinion about the respective currency’s purchasing power. If Buffett shared this view, a comparison between the purchasing power of the US dollar and gold would be in order. This exercise would show that gold – in sharp contrast to the US dollar – has not only preserved its purchasing power over the past decades but even increased it.”

Polleit goes on to highlight another significant advantage gold has over other currencies in a world drowning in debt. Gold has no counterparty risk.

Unlike fiat money, gold cannot be devalued by central bank monetary policy. It is immune against the printing of ever greater amounts of money. Furthermore, gold does not carry a risk of default, or a counterparty risk: Bank deposits and short-term debt securities may be destroyed by bankruptcies or debt relief. However, none of this applies to gold: its market value cannot drop to zero.”

This is why, when given a choice, smart investors almost always choose gold as their preferred form of money, and they’ve done so for centuries.

Gold offers protection against currency devaluation and payment default. And if you insist on thinking of gold as an asset, the price tends to go up during times of economic crisis – when the value of other assets is falling. In fact, gold hasn’t fared poorly against the S&P 500 this decade. As investor Frank Holmes pointed out last month, since 2000, the price of bullion has outperformed the S&P 2-to-1, 200% more performance on your money.

Buffett misses the point. Gold isn’t like a stock. It’s isn’t like oil. It certainly shares many features with assets and commodities, but at its core, gold is money.

WhyBuyGoldNowBanner.070815.590

Get Peter Schiff’s most important Gold headlines once per week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

Inflation’s Up; So What?

Here’s a strange headline for you: “Gold prices near daily highs despite better-than-expected inflation in October.” This headline is bizarre on a couple of levels. First, since when are rising consumer prices and good news? And second, why wouldn’t inflation be good for gold? You really have to buy into the mainstream narratives to write […]

READ MORE →

Powell Lectures Congress About Government Spending the Fed Facilitates

Fiscal 2020 started just like fiscal 2019 ended – with a massive federal budget deficit. And that has Federal Reserve Chairman Jerome Powell worried. In an ironic bit of political theater, Powell lectured Congress about the spending he helps facilitate. The budget shortfall last month was 34% higher than the October 2018 deficit, coming in […]

READ MORE →

Student Loan Bubble Blows Up Another $32.9 Billion in Q3

American consumer debt pushed to a new record of $4.15 trillion in September. Part of that equation – the continued surge in the levels of student loan debt. Student loan balances jumped by $32.9 billion in the third quarter this year, pushing total outstanding student loan debt to a new record of $1.64 trillion. Student […]

READ MORE →

Gold Mine Output Has Flatlined

Gold mine output has flatlined over the last several years and that trend appears to be continuing in 2019. In fact, some analysts believe we may be at or near “peak gold.” According to the World Gold Council’s Gold Demand Trends Q3 report, gold mine output fell slightly with total mine production coming in at […]

READ MORE →

The Gold Market Is Strong With the Potential for Growth

Gold is the third-most consistently bought investment globally. This was just one of many findings in the World Gold Council’s recently released consumer research report that revealed a strong global gold market with the potential for future growth. Globally, there are clear perceptions of gold as a safe, durable, traditional store of value. As an investment, […]

READ MORE →

Comments are closed.

Call Now