Gold has been on a ten year uninterrupted rally which has lead gold prices to the current price of $1,652. One would think that after so many years of quality gains, wouldn’t there be a pullback? Ordinarily, yes and I bet there will be some sort of a gold pullback in the next year or so but gold has become the new type of value investing. Obviously, when something rallies this much for that long, through good times and bad times, it is a value investment. Gold has been turned into a hedge, a flight for safety, rather than just for jewelry or currency. This hedge protects against inflation most of all and market uncertainties. It has taken on a more of a US Treasury type of safety but with higher returns.
However, it is not accepted fully by the investment community that gold investing is a type of value investing. Warren Buffett for instance, is firmly against the idea that gold can be a value investment. Back in 2010, Buffett was interviewed by Fortune Magazine and when he was asked about gold as a good value investment, this was his reply:
Stone House Capital Partners returned 4.1% for September, bringing its year-to-date return to 72% net. The S&P 500 is up 14.3% for the first nine months of the year. Q3 2021 hedge fund letters, conferences and more Stone House follows a value-based, long-long term and concentrated investment approach focusing on companies rather than the market Read More
“You could take all the gold that’s ever been mined, and it would fill a cube 67 feet in each direction. For what that’s worth at current gold prices, you could buy all — not some — all of the farmland in the United States. Plus, you could buy 10 Exxon Mobil’s, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?” (Warren Buffett, Fortune Magazine).
Obviously, Buffett is against the idea and he does bring up some good points. However, his argument is a bit overblown in my opinion because most retail investors are dealing with a very fractional amount of gold not all the gold ever mined.
Gold is a very solid value investment, especially these days when you have uncertainty in Europe, shaky US recovery and skyrocketing stocks. In this scenario, holding gold sounds like a brilliant plan. Although you may not be getting the high returns that everyone else is getting with stocks right now, when the market turns you will have the last laugh. David Einhorn and John Paulson, are among many other value investors who own gold.
All in all, gold has proven to us that it can hold its value pretty darn well and that it is a fantastic hedge against inflation, which is expected to be a problem later this year. In times of uncertainty or high volatility go take shelter in gold.