Best of the Week
Most Popular
1. Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - Nadeem_Walayat
2.Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - James Burgess
3.Gold Price Trend Analysis - - Nadeem_Walayatt
4.The Beginning of the End of the Dollar - Richard_Mills
5.Stock Market Trend Forecast Update - - Nadeem_Walayat
6.Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - Troy_Bombardia
7.Precious Metals Sector: It’s 2013 All Over Again - P_Radomski_CFA
8.Central Banks Have Gone Rogue, Putting Us All at Risk - Ellen_Brown
9.Gold Stocks Forced Capitulation - Zeal_LLC
10.The Post Bubble Market Contraction Thesis Receives Validation - Plunger
Last 7 days
SPX/Gold, 30yr Yields & Yield Curve – Amigos 1, 2 & 3 Updated - 21st Oct 18
Gold Stocks Sentiment Shifting - 21st Oct 18
Why Is the Weakness In GBP/USD Likely? - 21st Oct 18
Stock Market Bubbles, Balloons, Needles and Pins - 21st Oct 18
The Incredibly Bullish Set-Up for Gold - 20th Oct 18
Here Comes the Stock Market Retest - 20th Oct 18
Waterproof Camera - Olympus Tough TG-5 Setup and First Use - 20th Oct 18
Israel’s 50-Year Time Bomb, Pushing Palestinians to the Edge - 19th Oct 18
Bitcoin Trend Analysis 2018 - 19th Oct 18
History's Worst Stock Market Crash and the Greatest Investing Lesson! - 19th Oct 18
More Signs of a Stocks Bull Market Top and Start of a Bear Market in 2019 - 19th Oct 18
Stock Market Detailed Map Of Expected Price Movement Before The Breakout - 18th Oct 18
Determining the Outlook for Gold Mining Stock - 18th Oct 18
Investor Alert: Is the Trump Agenda in Peril? - 18th Oct 18
Stock Market is Making a Sharp Rally After a Sharp Drop. What’s Next? - 18th Oct 18
Global Warming (Assuming You Believe In It) Does Not Affect Gold - 18th Oct 18
Best Waterproof Compact Camera Olympus Tough TG-5 Review - Unboxing - 18th Oct 18
Silver's Time Is Coming - 17th Oct 18
Stock Market Volatility Breeds Contempt - 17th Oct 18
Gold 7-Year Bear Market Phase Is Over - 17th Oct 18
Gold - A Golden Escape - 17th Oct 18
Tec Stocks Sector Set For A Rebound? - 16th Oct 18
Real Estate Transactions are Becoming Seamless with Blockchain-Powered Data Sets - 16th Oct 18
Important Elements of a Viral Landing Page - 16th Oct 18
Stephen Leeb Predicts 3-Digit Silver and 5 Digit Gold?! - 16th Oct 18
BREXIT, Italy’s Deficit, The EU Summit And Fomcs Minutes In Focus - 16th Oct 18
Is this the Start of a Bear Market for Stocks? - 16th Oct 18
Chinese Economic Prospects Amid US Trade Wars - 16th Oct 18
2019’s Hottest Commodity Is About To Explode - 15th Oct 18
Keep A Proper Perspective About Stock Market Recent Move - 15th Oct 18
Is the Stocks Bull Dead? - 15th Oct 18
Stock Market Bottoms are a Process - 15th Oct 18

Market Oracle FREE Newsletter

Trading Any Market

Gold: Warren Buffett Is Absolutely Right (And Wrong)

Commodities / Gold and Silver 2016 Dec 07, 2016 - 02:29 PM GMT

By: Kelsey_Williams

Commodities

And many others are, too.

Among their various characterizations of gold are the following:  it is an unproductive asset; it doesn’t ‘do’ anything; it just sits there; it’s too volatile; stocks are a much better investment.


And, of course, they are right.  Up to a point.But they are right only because they are wrong.  And they are wrong because they view and analyze gold as an investment.  Gold is NOT an investment.  Gold is real money.

Even a majority of those who are favorable to gold, and should understand this distinction, don’t.

Hence, we see and hear statements similar to these:  1) “Gold should do  well under Trump” 2) “Investor optimism is hurting gold.” 3) “Higher interest rates will lead to lower gold prices” 4) “Deflation is good for gold” 5) “crisis in mideast will lead to explosive move upward in gold” 6) “gold will do well in a strong dollar environment”

The statements above are so totally wrong on so many counts that it is comical.  Ironically so, too, since they came from those who are primarily favorable to gold and supposedly understand it. Some are even considered experts.

But even if they were factually correct, there is only one thing we need to ask when talking about gold:  What is happening to the US dollar?

Gold’s value is not determined by world events, political turmoil, or industrial demand.  If you have in mind a particular scenario or series of events that you think are critical or important with respect to gold, then you need to reconsider them carefully as to what specifically would be the effect on the US dollar.  Nothing else matters.

The US dollar is the world’s reserve currency and gold is priced in US dollars.  If the US dollar continues to strengthen, then gold prices in US dollars will continue to decline.  If the US dollar weakens, then gold’s price in US dollars will go up.  It can’t be any other way.

None other than the highly respected and very successful Warren Buffett said the following in reference to a category of ‘investments’ which included gold:

“This type of investment (…assets that will never produce anything…) requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce — it will remain lifeless forever — but rather by the belief that others will desire it more avidly in the future.” — Warren Buffett Feb2012

Mr. Buffett also said:

“Even in the U.S., where the wish for a stable currency is strong, the dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire…” — Warren Buffett Feb2012

And during that same time period (1965-2012), gold was up a ‘staggering’ 4800%.

Is there any ‘investment’ of any kind that is up 4800% over a 47-year period that can reasonably be called ‘non-producing’?  And even if the term is technically correct, who cares?

So how did Mr. Buffett’s ‘productive assets’ category (stocks, real estate, farmland) do during the same time-frame?  From 1965 to 2012, the S&P 500 was up only 1400 percent.  And real estate was in the throes of a devastating crisis.

Admittedly, the S&P 500 figure does not include dividends reinvested, which makes a substantial difference over time.  That brings the total rate of return to closer to 6000%.  And, of course, since the time of Mr Buffett’s article, the numbers have widened considerably in favor of stocks.  But…

That reinforces my earlier statements.  Gold is NOT an investment.  It is real money.  And, even at its current price of $1170/oz, gold is up over 3300 percent since 1965.  Whereas, the US dollar continues to decline/lose value.

By Kelsey Williams

http://www.kelseywilliamsgold.com

Kelsey Williams is a retired financial professional living in Southern Utah.  His website, Kelsey’s Gold Facts, contains self-authored articles written for the purpose of educating others about Gold within an historical context.

© 2016 Copyright Kelsey Williams - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules