What are Warren Buffett's views on investment in gold? Here's why he has maintained a different approach towards the precious metal
Warren Buffett has said it many times that he had mostly favoured investing in businesses rather than holding physical gold. His believes is that gold cannot produce or generate income. He also argues that gold does not pay dividends, expand operations or reinvest earnings. According to him, investors buying gold primarily depend on its market price increasing to earn returns.
Buffett’s famous criticism of gold
Buffett explained his position in Berkshire Hathaway‘s 2011 annual shareholder letter. He questioned the economic usefulness of gold as an investment. He described how gold is mined, melted, stores and guarded, without producing anything during the time it is held.
His argument was that investors could own productive assets instead of an asset whose value depends largely on what another buyer is willing to pay.
Buffett used a hypothetical comparison in his 2011s shareholder letter to explain why he proffered productive assets. At the time, the world’s entire gold stock was estimated at approximately 170,000 metric tonnes. He valued this gold at around $9.6 trillion.
If melted together, the gold would form a cube measuring approximately 68 feet on each side.
Buffett compared this hypothetical gold holding with all 400 million acres of US cropland, sixteen companies the size of ExxonMobil, an additional $1 trillion in cash.
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Why did he choose businesses and stocks?
He believes and views shares as ownership in actual businesses, and preferred companies that have competitive advantages, strong management and the ability to generate consistent profits.
He thinks of these activities that can increase the underlying value of an investment over time. Benjamin Graham was the reason why his investment philosophy was influenced by value investing.
He also favours businesses that investors can understand and whose future earnings can be reasonably estimated.