What Warren Buffett Gets Wrong On Gold
(Kitco News)- Warren Buffet, CEO ofBerkshire Hathaway, is known for his pernicious views on gold but his latestbout of negativity misses the point of yellow metal’s true investment value,according to some analysts.
The Oracle of Omahamade some ripples through the gold market over the weekend as he compared theprecious metal to the S&P 500. During his presentation Saturday at theBerkshire Hathaway's annual meeting he compared a $10,000 investment in gold to a$10,000 investment made in the S&P 500 Index in 1942 - he acknowledged thatthe S&P 500 didn’t exist in 1942.
He said that aninitial $10,000 investment in the stock market index 76 years ago would be worth$51 million today. Meanwhile, during the same time frame, $10,000 in gold wouldbe worth $400,000.
"In other words,for every dollar you could have made in American business, you'd have less thana penny of gain by buying into a store of value which people tell you to run toevery time you get scared by the headlines," Buffett said in hispresentation.
"While thebusinesses were reinvesting in more plants and new inventions came along, youwould ... look into your safety deposit box, and you've have your 300 ounces ofgold. And you would look at it, and you could fondle it, I mean, whatever youwanted to do with it. But it didn't produce anything,” he added.
However, according tosome commodity analysts, Buffett’s comments, while correct, misses the point ofwhy investors should invest in gold.
Colin Cieszynski,chief market strategist at SIA Wealth Management, described Buffett’s view ongold as a “little too simplistic.”
He added that theBerkshire Hathaway CEO is not wrong, but the gold market is a lot more nuanced.Comparing gold to the stock market is like comparing apples and oranges, hesaid.
“Gold is not in aportfolio to make money,” he said. “It’s a hedge against inflation; it’s ahedge against currency devaluation; it’s a hedge against crises. It doesn’tgenerate wealth, but it is a store of wealth.”
Todd Horwitz, chiefmarket strategist of BubbaTrading.com, said that investors should not ignoregold’s value as a safe-haven insurance policy. He added that while he is anadvocate of holding physical gold, he said that investors shouldn’t be whollyinvested in the metal. It is meant to be a portfolio diversifier.
“There is no betterinvestment in the world than the stock market. There is no better place tocompound your investment” he said. “You will never get true value out of gold,but you will get a good night sleep knowing you have it. Gold will carry itsvalue forever.”
Horwitz added that headvocates investors hold up to 10% of their portfolio in the physical metal asa store of wealth.
Phillip Streible,senior market strategist at RJOFutures, equated gold to home insurance. Headded that insurance doesn’t add value to a home, but it does protect it whenit’s built on the side of a cliff.
Streible said thatgold is a tactical asset to own in the midst of a crisis and during specificperiods it has shown to outperform equities.
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.