Warren Buffett: Billionaire investors believe that gold is a non-profitable asset because it does not have much use value and does not generate income.
For many people, gold always holds a special place. Precious metals can be used as jewelry or as a store of value. Gold almost always increases in price over time, providing a hedge against inflation and diversifying an investment portfolio.
However, during more than half a century of investing, billionaire Warren Buffett is not interested in gold. This veteran investor has repeatedly criticized precious metals for bringing negative things.
“Gold is dug out of the ground in Africa or somewhere. Then we melt it, then dig another hole, bury it again and pay someone else to watch it. Gold. there is no practicality,” he said of investors buying gold and then spending money in banks to store it in underground vaults, in a speech at Harvard in 1998.
The billionaire also once said that “owning a goose that lays eggs is much better than a goose that just sits there and eats up insurance, storage, or something like that”. Whenever he mentioned gold, he used harsh words to criticize.
According to The Motley Fool, the “sage of Omaha” divides investments in the market into three categories. In particular, cash investments include savings account deposits, money market funds, bonds and other similar investments. These are assets that are generally considered “safe” by investors.
The second are useful assets, those that can appreciate in price over time and can create other assets of value along the way. For example, if you own a stock, it can generate dividend income for the investor, and the stock itself can increase in value over time. In addition to stocks, examples of useful assets are businesses and rental properties.
Finally, non-yielding assets. The 91-year-old billionaire always asks this question: “Who would be willing to pay more than you are paying today for Vinhome central park for rent?”.
ABC News cited Warren Buffett’s 2011 letter to shareholders that he classed gold as a non-yielding asset class. Investors argue that assets like gold “will never produce anything, but are bought in the hope that the latter will pay more for the former”. Owners of assets like gold “are not inspired by what the asset itself can produce, but by the belief that others will aspire to it in the future”.
According to Warren Buffett, gold has two major insurmountable flaws. The precious metal “is neither useful nor creates value”. Gold is only used in industry and decoration, but the demand from these two fields is not enough to use all the gold that people are mining. Besides, the big issue is that the value of precious metals goes up or down based on what others are willing to pay for it, not on its ability to generate income for its owners.
One of Warren Buffett’s basic investing principles is that you should only invest in things that are useful, serve a purpose, and fulfill a practical human need. Same precious metal, but he prefers silver. According to him, silver has many industrial and medical applications. In medicine, silver is used for bandages, medical catheters, and healing of burns or other health problems. It is also used for water purification. In electronic equipment, silver is the best conductor of electricity and does not corrode, so it is widely used in wiring and connecting parts, computers, mobile phones, cameras…
The only time Warren Buffett was involved in gold was his purchase of $317 million in stock in gold mining company Barrick Gold. However, the deal lasted only a quarter and was done through Berkshire Hathaway – the investment group he owns.
Therefore, it is difficult to determine whether Warren Buffett personally made this investment, or two other Berkshire leaders, Ted Weschler and Todd Combs. On the other hand, it cannot be said that Warren Buffett has invested in gold because the nature of the transaction above is an investment in a gold mining company, not that he directly bought gold.
According to The Economic Times, when Warren Buffett bought Barrick Gold stock, many well-informed investors also frantically “collected”. So, when he closed the deal, the market also wobbled.