Warren Buffett on Gold

In a 2011 interview, esteemed investor Warren Buffett criticized gold for being a useless metal:

“all the above ground gold would make a cube that is 67 ft tall and worth $7 trillion dollars. For $7 trillion dollars…you could have all the farmland in the United States, you could have about seven Exxon-Mobil, and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon-Mobil.”

But Buffett is falsely leading people when he makes such statements, for what he fails to mention is that he is not comparing apples with apples. His logic is fallacious because gold cannot be compared to Exxon and farmland. Gold is money and therefore it must be compared to other forms of money, such as the Canadian/ US dollar, and not with investments like farmland and Exxon-Mobil. What you can do is compare dividend-paying gold mining companies with farmland and Exxon, for they too pay dividends. Newmount Mining Corporation, for instance, pays out a higher dividend than Exxon. Now, these investment plays can be compared.

Berkshire Hathaway at one point owned over 37% of the world’s total silver supply

Warren Buffet and others on main-stream are extremely bearish on precious metals. Warren Buffet, through his company Berkshire Hathaway, at one point owned 129.7 million oz of silver, over 37% of the world’s total silver supply, and sold all of it in 2006 when the price was approximately $7.50/oz. Silver has since appreciated around 400%. For someone who owned more than a third of the total silver supply at one point, to make such negative statements about bullion is just plain odd; indeed, something seems amiss.

Another thing that Buffett fails to mention is that in this investment decade, with all the third-party risk out there with paper assets (i.e. MF Global scandal) you need to worry about return of investment more so than return on investment. This is one of the main reasons why its a good idea to be investing in precious metals: it is a good insurance against the debt/paper/third-party risk paradigm.

Debt/Paper/3rd Party Risk Paradigm

At a time when central banks around the WORLD are debasing their currency by printing money, why wouldn’t you want to own some inflation-hedges like precious metals? In my opinion, junk silver (AKA ‘poor man’s gold’) is probably the best way to accumulate the most amount of silver for your money. (Find an extensive guide on Canadian junk silver here.) The best deals on junk silver regardless of where you live can oftentimes be found on Ebay. (US junk silveron ebay). But then again, Warren Buffett would advise against it.

What do you think about Warren Buffett?

Original article: Warren Buffett on Gold

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