When the Oracle Of Omaha speaks, investors tend to listen. In his latest prophecy, Warren Buffett makes the case for why stocks deserve a place in your portfolio over gold any day. His criticism of the precious metal stems from his definition of investing; which is foregoing consumption now in order to have the ability to consume more in the future. Buffet offers an insightful overview of the investment landscape, splitting up the financial universe in three categories: currency-based investments, nonproductive assets, and productive assets [see also Doomsday Special: 7 Hard Asset Investments You Can Hold In Your Hand].
As you may have already guessed, the Wall Street legend rightfully classifies gold under the nonproductive label. Because barsof gold don’t pay a dividend, and no matter how long you safeguard them for they won’t ever produce anything, the precious metal lacks luster when it comes to utility. Buffet points to a rather simple explanation for why anyone would ever invest in such an asset; he states that owners of gold are compelled by an expanding pool of buyers, believing that in the future (hopefully) others will desire the lifeless asset even more. Although industrial demand for gold is most certainly one of the price drivers, the precious metal is largely influenced by fear and speculation [for more gold news subscribe to our free newsletter].
Not So Shiny
Buffet goes onto propose a compelling example which illustrates his criticism of the shiny metal. He offers investors a hypothetical choice between two piles; the first pile is all of the gold in the world, about 170,000 metric tons, worth an estimated value of $9.6 trillion. The second pile is worth an equal amount, which could buy approximately 400 million acres of U.S. cropland, 16 Exxon Mobils, and still have about $1 trillion left over [see Seven Reasons To Hate Gold As An Investment].
Which would you rather have? A pile of gold that will forever remain unproductive, or more than a handful of assets which can generate current return in addition to capital gains. Buffet drives his point home with a clear-cut look at what a $100 investment in 1965 would be worth today. If you had invested in short-term Treasuries, your $100 could have turned into $1,336. And now for the real comparison; if you had invested in gold, you would have $4,455 today, versus $6,072 had you invested in the S&P 500.
Ways To Play
Investors who agree with Buffet’s criticism of the precious metal, but are still lured by it timeless store of value, can opt for exposure to related productive assets. More specifically, investors who wish to avoid holding physical bullion, but are confident that the businesses who mine for the metal will continue to generate cash flows, may wish to own shares of publicly traded commmodity producers [see The Complete Guide To Investing In Gold].
Some of the world’s biggest gold mining companies include Barrick Gold (ABX), Goldcorp (GG), and Newmont Mining (NEM). Investors who wish to access the space through a more broad-based approach can utilize several exchange-traded funds; the Van Eck Market Vectors Gold Miners ETF (GDX) is the biggest and most popular fund available. However, investors should be aware that this ETF includes exposure to several firms which are involved in silver and platinum mining as well. Those who wish to gain “pure play” exposure to the gold mining industry ought to consider the Global X Pure Gold Miners ETF (GGGG); this fund allocates its assets only to companies which generate the vast majority of their business from gold mining.
[For more commodity ideas sign up for our free CommodityHQ newsletter.]
Disclosure: No positions at time of writing.
Photo courtesy of Bjørn Christian Tørrissen.
[...] and gold miners took the lead after having grossly under-performed over the past few weeks [see Why Buffet Hates Gold]. Gold prices rallied all the way to $1,730 an ounce throughout the day after touching a low-point [...]
[...] from a performance perspective relative to the their peers as well as the broad market [see also Why Warren Buffett Hates Gold]. We have also opted for two international equity products which employ an equal-weighted [...]
[...] No ETF has been more instrumental to gold’s rise than the SPDR Gold Trust (GLD), which just so happens to be the second largest ETF in the world by assets. With over $70 billion in AUM and an average daily volume topping 11.9 million, GLD has established itself as an investor favorite and as one of the most popular funds around. But the fund is not without its drawbacks and for those looking to establish long term exposure to gold, there is one fund that offers a more enticing investment thesis, the COMEX Gold Trust (IAU) [see Why Warren Buffett Hates Gold]. [...]
Buffet may be some sort of “Wizard” when it comes to equity investing, but he has proven to be unreliable for his biased characterization of our progressive tax system. He prevaricates when stating that the rich don’t pay their fair share. They pay most of the taxes received by the IRS, as they should. Asking them to pay more would result in less tax revenue. He knows this to be true. Why does the financial world still trust this man?
[...] Though value investing never truly went out of style, it has certainly become an increasingly popular strategy over the past few years. Interest in dividend-paying stocks skyrocketed in 2011 as investors sought both safety and yield. Given the lingering risks to a still-fragile global economic, as well as the likelihood of low rates in many markets through at least next year, interest in this approach figures to remain elevated for the foreseeable future [see also Why Warren Buffett Hates Gold]. [...]
[...] Though value investing never truly went out of style, it has certainly become an increasingly popular strategy over the past few years. Interest in dividend-paying stocks skyrocketed in 2011 as investors sought both safety and yield. Given the lingering risks to a still-fragile global economic, as well as the likelihood of low rates in many markets through at least next year, interest in this approach figures to remain elevated for the foreseeable future [see also Why Warren Buffett Hates Gold]. [...]
[...] As February draws to a close, investors will have plenty of key data points to digest as we enter the new month. Some of the biggest focal points of the month have been gold and oil, which have both been surging for the majority of the past few weeks, leaving investors to scramble in and out of commodity positions. Equities, on the other hand, have been largely dominated by progress made in Europe regarding the Greek debt crisis. With a second bailout planned for the indebted nation, investors hope for a much needed break from euro woes and all of the subsequent market volatility as a result [see also Why Warren Buffett Hates Gold]. [...]
[...] As February draws to a close, investors will have plenty of key data points to digest as we enter the new month. Some of the biggest focal points of the month have been gold and oil, which have both been surging for the majority of the past few weeks, leaving investors to scramble in and out of commodity positions. Equities, on the other hand, have been largely dominated by progress made in Europe regarding the Greek debt crisis. With a second bailout planned for the indebted nation, investors hope for a much needed break from euro woes and all of the subsequent market volatility as a result [see also Why Warren Buffett Hates Gold]. [...]
[...] high as $1,792 an ounce, settling near $1,785 an ounce as the trading session drew to a close [see Why Warren Buffett Hates Gold]. [...]
[...] Gold had been flirting with the $1,800 level over the past few sessions, however, comments from Ben Bernanke coupled with robust economic data simultaneously paved the way for profit taking on Wednesday. Selling pressures hit the precious yellow metal hard after comments from the Fed painted a conservatively-optimistic outlook for the U.S. economy, putting a damper on inflation expectations. Gold prices dropped over 4% on the day as Chairman Bernanke’s testimony did not offer any indications that another round of quantitative easing would be initiated [see Why Warren Buffett Hates Gold]. [...]
[...] So it turns out Warren Buffett might not be the only legendary investor whose succession plans are a topic of discussion in coming years; investors will no doubt be keeping a close eye on Gross and any intentions to step aside in the future [see Why Warren Buffett Hates Gold]. [...]
[...] Gold had been flirting with the $1,800 level over the past few sessions, however, comments from Ben Bernanke coupled with robust economic data simultaneously paved the way for profit taking on Wednesday. Selling pressures hit the precious yellow metal hard after comments from the Fed painted a conservatively-optimistic outlook for the U.S. economy, putting a damper on inflation expectations. Gold prices dropped over 4% on the day as Chairman Bernanke’s testimony did not offer any indications that another round of quantitative easing would be initiated [see Why Warren Buffett Hates Gold]. [...]
[...] While stocks have been posting big numbers over the past few trading sessions, commodities have been struggling to find their ground. A slew of good data from the U.S. has given a fair amount of momentum to equities, but commodities have remained volatile, as many seem to have their gaze fixated on sky-high crude oil and subsequent gas prices, though crude tapered off to end the week. Orange juice and soybean futures took the lead this past week, as both contracts tacked on more than 5% to their underlying prices. Meanwhile, natural gas continued its slide, surrendering roughly 8% on the week while gold futures dipped by nearly 4%. In an effort to keep our readers up to date on the fast paced world of commodities, we outline three of the best stories from around the web this week [see also Why Warren Buffett Hates Gold]. [...]
[...] Wednesday saw gold dip by roughly $100/oz. and the precious metal was unable to find its way higher, as it closed the week out around $1,713/oz. Silver saw similar losses, creating a buying opportunity for bargain hunters searching through the commodities space for the most enticing deals. Perhaps the most talked about commodity of the week was crude oil, whose price has been skyrocketing since late last year. Friday finally saw some relief, as the fossil fuel lobbed off more than 2% of its underlying price. In an effort to keep our investors up to date on all of the latest happenings in the financial world, we outline two most significant ETF performances on the day [see also Why Warren Buffett Hates Gold]. [...]
[...] Though gold looked like it was in for another nasty trading day, the precious metal was able to pull out of its tailspin and finish the day up $15/oz. Gold was one of the worst-hit assets on the week, allowing bargain hunters to take advantage of its low prices, subsequently giving momentum to the commodity. Crude oil also had a busy week, dropping as low as $104.5/barrel but still finishing out the week on a strong note, posting a small gain on the aggregate five day period. In an effort to keep investors up to date with all of the happenings in the financial world, we outline two of the most notable ETF performances on the day [see also Why Warren Buffett Hates Gold]. [...]
[...] Though gold looked like it was in for another nasty trading day, the precious metal was able to pull out of its tailspin and finish the day up $15/oz. Gold was one of the worst-hit assets on the week, allowing bargain hunters to take advantage of its low prices, subsequently giving momentum to the commodity. Crude oil also had a busy week, dropping as low as $104.5/barrel but still finishing out the week on a strong note, posting a small gain on the aggregate five day period. In an effort to keep investors up to date with all of the happenings in the financial world, we outline two of the most notable ETF performances on the day [see also Why Warren Buffett Hates Gold]. [...]
[...] Most investors feel comfortable with GLD’s physical strategy, as holding physical bullion is the arguably the safest way to invest in the commodity, but does GLD truly hold physical gold bullion? In recent years there has been a significant amount of backlash from individual investors claiming GLD to be a sham and stating that the fund is nothing more than “paper gold”. But calling out the second most popular ETF on the face of the earth is no easy task, as so many other investors have already ascribed to its strategy. The smoking gun of the ETF, many feel, lies in the prospectus and other filings from the issuer that many investors miss because, let’s face it, not everyone read’s the prospectus before investing [see also Why Warren Buffett Hates Gold]. [...]
[...] Why IAU Will Be In Focus: This fund measure physical gold bullion and has been making strides in recent months as its expense ratio is a full 15 basis points lower than the mega-popular GLD. This fund has slid more than 8% in the past three months, as gold futures have had an increasingly hard time establishing any kind of upward momentum. But last Thursday saw the precious metal turn things around as technical buyers stepped in at low levels to gobble up the commodity. Some are calling it a dead cat bounce while others expect gold to continue to rally. Either way, IAU will be an important product to watch throughout this week [see also Why Warren Buffett Hates Gold]. [...]
[...] With gold sitting well below $1,600/oz. investors have the opportunity to buy in on a possible low for the precious metal. The speculation for this low comes from the wide expectation that the Fed will be forced to step in with a third round of quantitative easing to help keep markets on the right track. Though Ben Bernanke has been quite reluctant to make any solid commentary on another asset purchasing program, it seems almost inevitable with all of the turmoil around the world, that our economy will need another stimulus to stay afloat in these tough economic times. That being said, if there is no QE 3 on the way, gold could continue to slide as investors are uncomfortable holding the metal during such time of global unrest [see also Why Warren Buffett Hates Gold]. [...]
[...] The above chart displays what happened to both gold and silver during the last crash in comparison to the DB Commodity Index Tracking Fund (DBC) which invests in the 14 most heavily traded futures contracts in the world. Though gold saw a dip, it was able to hold its ground much better and continue on to make strong gains. At this point, some investors may be arguing that sitting in cash is by and large the safest place to be. Bear in mind that while your money is sitting in cash, earning practically 0% interest, gold prices will be keeping up with inflation and holding the value of your money, while your cash will simply be devaluing every day that it sits [see also Why Warren Buffett Hates Gold]. [...]
[...] A second option is to simply bury it. While it may sound ridiculous at first, properly burying the gold can often be the safest way to store it. With the gold out of the house and not in a bank, it will be protected from fires, robbery, and the like. Those wishing to go this route will want to take a number of precautions, with the first being to not let anyone see where you have buried your bullion. Make sure you put the coins in something that is airtight in order to keep out the elements, which can damage the coins over a long period of time. And just in case you are extra paranoid, the average metal detector works up to approximately four feet. The downsides to burying your precious metals are quite apparent; limited access, meticulous planning, not to mention keeping the location a secret while still being able to monitor the land for any kind of natural disturbances or construction projects [see also Why Warren Buffett Hates Gold]. [...]
[...] to act prior to and beyond the Fed meeting concerning this precious metal. So how about it, are you buying gold? Let us know in the [...]
[...] For those looking to invest in these two metals, there are a number of ETFs to help you take advantage of these assets. Among several broad based products, the ETFS Physical Palladium Shares (PALL) and the ETFS Physical Platinum Shares (PPLT). Platinum is more widely represented as there are several other products that also utilize a futures-based strategy [see also Why Warren Buffett Hates Gold]. [...]
[...] After soaring in price to $1,900/oz. gold quickly became everyone’s favorite commodity, as the precious metal was not only used as a safe haven, but also as a speculative tool for trading. But that was 2011, and this year is a different animal. Last year, gold as a safe haven investment made perfect sense; it featured a correlation of -0.64 to the S&P 500, allowing it to prey on choppy markets and deliver handsome returns to a number of investors. With a correlation like that, gold made for a perfect safe haven, as it would rise as equities fell. This year, however, gold’s has become much different, as its correlation with the S&P 500 year-to-date is sitting at an almost perfect 0 (0.003 to be exact) [see also Why Warren Buffett Hates Gold]. [...]
assuming Silver was $1 per ounce in ’65 (pre-65 silver dollars), a $100 investment is more than double the value of gold according to the author’s calculations.
[...] These accounts are personally-run by their authors [see also Why Warren Buffett Hates Gold]. [...]
Buffett, like many professional investors, seems unable to get out of his own “investor” mentality in order to think like a “saver”. A saver has a full time job other than investing, does not have the time to do all the due diligence that investing requires, and just wants a reliable medium in which to store his personal surplus value beyond what he consumes. This is the role of gold. It’s not an “investment”. It’s a store of value for the future that does not rely on any counterparty.
[...] as the Wizard, Oracle and/or Sage of his hometown of Omaha, Nebraska, Warren Buffett rose from a middle-class background to become one of the world’s wealthiest men. Although he has [...]
[...] as the Wizard, Oracle and/or Sage of his hometown of Omaha, Nebraska, Warren Buffett rose from a middle-class background to become one of the world’s wealthiest men. Although he has [...]
[...] was Warren Buffett that urged investors to be greedy when others are fearful, and fearful when others are greedy. At a [...]
[...] was Warren Buffett that urged investors to be greedy when others are fearful, and fearful when others are greedy. At a [...]
[...] These accounts are personally-run by their authors [see also Why Warren Buffett Hates Gold]. [...]