Except in 1980, when Buffett grumbled that his company’s book value, when expressed in gold bullion terms, had shown no increase from 1964 to 1979.
Over a 15 year period Buffett’s efforts in growing Berkshire Hathaway had been matched stride for stride by a lump of metal, requiring no business nous what-so-ever.
However, not long after Buffett’s grumble, gold began a nearly 30 year period of zero growth – not until 2008 did gold get back to its previous high of January 1980.
Buffett didn’t have much to talk about, until the current day, where currency manipulation and the spectre of inflation have made gold all the rage.
So what’s Buffett saying now?
He offers that all the known gold in the world equals 170,000 metric tonnes and if melded together it would form a cube 68 feet per side.
At $1750 per ounce, its value would be $9.6 trillion. Buffett calls that cube ‘pile A’.
Buffet then imagines a ‘pile B’ of $9.6 trillion dollars, which could buy all US cropland (400 million acres producing $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, earning $40 billion annually).
After that spending spree there’s still $1 trillion in cash left over, so Buffett asks why would any investor choose pile A over pile B?
The farmland would continually produce regardless of the currency and the 16 Exxon Mobils would likely go on paying dividends into the trillions, while the gold cube’s size is unchanged and is incapable of producing anything.
An ounce today will still be an ounce tomorrow and it won’t generate a cent that can be reinvested elsewhere.
The only source of appreciation for the gold buyer of today is the hope of a buyer willing to pay more tomorrow.
It’s the greater fool theory.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL/ACL 224543. This information is general in nature and readers should seek professional advice specific to their circumstances. If you want help with your financial future, we’re arguably the best financial advisor in Australia.
