Warren Buffet does not like Gold, and as every word out of the influential investor is considered gold, the opinion is supposed to hold some weight and shape investor sentiment towards the shiny commodity. But not everybody agrees with the Oracle of Omaha on this opinion. At one end we have Buffett trashing gold, at the other we have popular investors, like David Einhorn and Ray Dalio bashing Buffett for not seeing its value. Lets talk about the Oracle first:
Warren Buffet is not excited about gold for many reasons, the crux of his whole thesis is that gold’s valuation is entirely dependent on how someone else perceives it, so the valuation is psychological rather than actual. He is bearish on gold because he thinks the major force behind this investment is the fear factor. The commodity itself does not generate any profit, as one cannot make anything from it, well nothing except jewelry of course. Buffett thinks its more productive “…to buy something that you expect to produce income for you over time”, instead of investing in a commodity that depends solely on the next buyer’s sentiment.
The Children's Investment Fund Management LLP is a London-based hedge fund firm better known by its acronym TCI. Founded by Sir Chris Hohn in 2003, the fund has a global mandate and supports the Children's Investment Fund Foundation (CIFF). Q3 2021 hedge fund letters, conferences and more The CIFF was established in 2002 by Hohn Read More
The most interesting picture that Buffett draws is the comparison between the total gold assets of the world, versus equities and land. He says the entire gold amounts to over $9.6 trillion, the amount is big, no doubt but there is a multitude of stocks, land, and bonds that can beat this figure and provide more value and a larger margin of profit, over a shorter period of time. He cites the example of super major Exxon Mobil Corporation (NYSE:XOM) in this regard.
Buffett is expecting the gold bubble to burst, the metal has broken price records over the past years, and the high value will faze out at some point, as is the case with all assets. A noteworthy point here is that, its not just gold that Buffett is not a fan of, he holds similar views on all commodities.
Moving on to those who love gold, leading the pack are David Einhorn of Greenlight Capital Re, Ltd. (NASDAQ:GLRE) and Ray Dalio of Bridgewater Associates. Others include George Soros of Soros Capital Management, and lately, the not-so-successful John Paulson of Paulson Co, whose portfolio is largely made up of gold investments.
The most vocal on the fanciness of gold have been David Einhorn and Ray Dalio. Einhorn mocks Buffett’s analogy of building a gold cube in a baseball field in clear, unequivocal terms. At one side Buffet said, ““Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce–gold’s price as I write this–its value would be $9.6 trillion”
Einhorn’s comeback is juicy and worth reading for its irony,
“The debate around currencies, cash, and cash equivalents continues. Over the last few years, we have come to doubt whether cash will serve as a good store of value. If you wrapped up all the $100 bills in circulation, it would form a cube about 74 feet per side. If you stacked the money seven feet high, you could store it in a warehouse roughly the size of a football field. The value of all that cash would be about a trillion dollars. In a hundred years, that money will have produced nothing. In a thousand years, it is likely that the cash will either be worthless, or worth very little. It will not pay you interest or dividends and it won’t grow earnings, though you could burn it for heat. You’d have to pay someone to guard it. You could fondle the money. Alternatively, you could take every U.S. note in circulation, lay them end to end, and cover the entire 116 square miles of Omaha, Nebraska.”
Einhorn likes gold, and is not shy of criticizing those who don’t like his golden views. On the other hand, Ray Dalio takes a less heated, but positive view on gold as an investment. He thinks that gold diversifies an investor’s portfolio and helps evade the inflationary pressures that come from cash. In the long term, it might not be the best option, but it certainly comes off with a better score when compared to cash.
It looks like a number of investors are becoming increasingly bullish about gold, and Buffett’s view on this commodity is not a holy grail, as has been the case with other investments. As we reported, Soros likely made a huge gain off gold recently. An estimated 44 percent of Paulson & Co’s assets are concentrated in gold. John Paulson owns 21.8 million shares in SPDR Gold Trust (ETF) (NYSEARCA:GLD), and considerable stakes in NovaGold Resources Inc. (NYSEAMEX:NG (TSE:NG) and Barrick Gold Corp. (TSE:ABX) (NYSE:ABX)