Legendary American investor Warren Buffett, chairman and CEO of Berkshire Hathaway, and the world’s fifth richest man with a net worth of around $80 billion (according to Bloomberg), appears to have softened his stance on gold.
Buffett has never tried to hide his disdain for gold and Bitcoin, neither of which he considers an investable asset since, in his words, they do not produce anything (unlike, say, businesses, farms, or real estate).
According to an article by Matthew DiLallo for The Motley Fool, which was published on 13 September 2014, at a speech given at Harvard University in 1998, Buffett had this to say about 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.”
In his 2011 Letter to the Shareholders of Berkshire Hathaway Inc., he explained that he considered two categories of investments as highly risky:
- currency-based investments, such as bank deposits, bonds, and money-market funds
- investments in non-productive assets, such as gold
Buffett does not like the first category because such assets lose their purchasing power over time due to inflation:
“Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as the holders continued to receive timely payments of interest and principal.
“This ugly result, moreover, will forever recur. Governments determine the ultimate value of money, and systemic forces will sometimes cause them to gravitate to policies that produce inflation.
“From time to time such policies spin out of control.”
As for the second category, he says that such assets are “purchased in the buyer’s hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future.”
He then focused his attack on gold, which he considers the best-known example of a non-productive asset:
“Gold, however, has two significant shortcomings, being neither of much use nor procreative.
“True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production…
“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.
“Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As ‘bandwagon’ investors join any party, they create their own truth – for a while…
“But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: ‘What the wise man does in the beginning, the fool does in the end.'”
As mentioned earlier, Buffett also does not like Bitcoin for more or less the same reason as gold, i.e. he considers it another example of a non-productive asset, as he explained
On 7 May 2018, during an interview with CNBC’s “Squawk Box”, he explained why he hated Bitcoin so much:
“When you’re buying nonproductive assets, all you’re counting on is the next person is going to pay you more because they’re even more excited about another next person coming along, but the asset itself is creating nothing.”
Well, now, the man who has so often explained why gold is such a terrible asset, seems to have found some love for gold, or at least gold mining, perhaps due to worry over potential upcoming high inflation caused by all the monetary and fiscal stimulus measures that will be needed to fight the economic impact of the COVID-19 pandemic.
On Friday (August 14), MarketWatch reported that according to 13F filings with the U.S. Securities and Exchange Commission (SEC) for the period ended 30 June 2020, Buffett’s Berkshire Hathaway sold 26% of its stake in Wells Fargo & Co. and about 61% of its position in JPMorgan Chase while buying nearly 21 million shares of Barrick Gold Corporation (NYSE: GOLD).
Barrick, the world’s largest gold mining company by annual production, “has gold and copper mining operations and projects in 13 countries in North and South America, Africa, Papua New Guinea and Saudi Arabia.”
Barrick’s shares “trade on the New York Stock Exchange under the symbol GOLD, and on the Toronto Stock Exchange under the symbol ABX.”
On May 6, Mark Bristow, the President and CEO of Barrick, said during an interview with CNBC’s “Squawk Box”:
“With the response to Covid, as you point out, we’ve taken that quantitative easing to a different level, and of course that puts pressure on paper money, and you measure that with the price of gold… and you’ve seen the price of gold go up in all currencies across the globe in recent times.”
He later added:
“This situation is what we’re all about, giving our investors an opportunity to have a self-funded insurance policy against a global financial crisis.”
It is worth noting that at the time of this interview, the price of gold was around $1,700 an ounce. On Friday (August 14), gold closed at 1,944.27 an ounce.
Famous gold bug and Bitcoin skeptic Peter Schiff, who is the CEO of Euro Pacific Capital, a full-service, registered broker/dealer specializing in foreign markets and securities, as well as founder and Chairman of SchiffGold, a full-service, discount precious metals dealer, had this take on Berkshire Hathaway’s investment in Barrick Gold:
And Anthony Pompliano (aka “Pomp”), a co-founder of crypto-focused asset management firm Morgan Creek Digital Assets, tweeted to say that he believed that Buffett should have invested in Bitcoin instead:
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.