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Warren Buffet Slams Gold and We Agree… Almost

In his annual letter to Berkshire Hathaway shareholders, Warren Buffet took yet another swipe at gold saying that the “magical metal was no match for the American mettle.”

It’s no secret that Buffett doesn’t like gold as an investment as he has mentioned this in other public addresses, annual meetings and letters. If you didn’t already know, Berkshire Hathaway is the world’s largest financial service company by revenue, and owned by Buffett. With this in mind it is no surprise that Buffett would support further investments into the equity market as he has many horses in that race, whereas in the gold market he has none.

In the letter Buffett also wrote that investing in his stock would be far more beneficial than investing in metal. In my opinion this depends on the portfolio.

However, the main problem with his gold-problem lies in the comparable. We tend to agree with Buffett in that 90% of assets should be deployed in things beyond precious metals. This is because we believe the purpose of precious metal is not to build wealth but to protect it. We strongly suggest that 10% be deployed into gold and silver because historically, they react inversely to equity markets, real estate markets and our fiat currency, creating a great hedge in times of volatility. So then, to compare precious metal investing and stock market investing is really to compare an apple to an orange, or perhaps more appropriately, a shield to a sword.

The size of each individual market is exponentially different as well. The COMEX, for instance, is the world’s largest physical futures trading exchange, and it warehouses gold for investors who wish to take physical delivery of the gold that they own. In the beginning of this month, the COMEX recorded roughly 502,000 ounces of physical gold available for delivery. At the current spot price of $1,306 per ounce, that equals roughly $655 million. This is a miniscule amount compared to the cash that is in equity markets or even Buffett’s own company. Berkshire Hathaway alone has roughly $112 billion in cash available. That means they could purchase all of the registered physical gold at the COMEX with nothing more than 1% of their available cash.

Of course, we aren’t advising the company do this since we maintain that gold is not a profit-producing investment, but rather a wealth preservation tool. And they would need far more than the inventory at the COMEX to reach the 10% allocation that we recommend.

Precious metals as a wealth preserver is not a speculative idea; it is history. Skeptical investors who did not have a position in precious metals saw the wealth transfer take place from 2008 to 2011 and bought precious metals on the upswing, missing the success of the tool. But when properly positioned in precious metal, the carnage is far less when times like the 2008 financial crisis hit. None of our clients have wealth the caliber of Warren Buffet’s so they need a tool like this that will help mitigate risk in their portfolio in times of volatility.

According to Warren Buffet’s own charts and data, the equity markets are due for a correction. Even without his data it is not hard to conclude that, with this being the largest expansion in U.S. history, the time to hedge your clients’ portfolios with gold and silver is now.

As I travel around the country speaking at workshops for our contracted advisors, I am baffled by the number of investors who do not have exposure to precious metal in their portfolio. I spend countless hours reviewing financial history and simple economic principles with these investors to educate them on the importance of precious metal in any portfolio. Feel free to email my team at info@nationalgoldconsultants.comto learn more about insuring your clients’ wealth.