Why Warren Buffett doesn't invest in gold

Gold prices hit a record, but in investment history, Warren Buffett has almost said no to this precious metal because he believes it is an asset that does not create value.

At the end of the weekend trading session, the world spot gold price was at 2,343 USD per ounce, down more than 30 USD. However, during the session, the precious metal reached 2,429 USD - a new record. Domestically, this item also decreased, around 83 million VND per tael. Previously, gold bars peaked at 85 million VND, and 24K plain rings also reached 78 million VND per tael.

Investors have different reasons for owning gold. In some ways, the precious metal has been used as a currency for centuries. But others believe that gold is an asset that sits in a safe, doesn’t produce anything, and therefore has no residual value. That’s why the world’s most famous investor, Warren Buffett, has never invested in gold.

In his 2011 letter to shareholders, he pointed out that for the money spent on all the gold in the world, an investor could buy all the farmland in the United States and still have enough left over to own 16 ExxonMobils, the world’s largest oil and gas company by revenue. Over time, these would yield rich harvests and dividends, while anyone who bought gold would still end up with a warehouse full of shiny metal bars.

He also said that gold has some industrial and decorative uses, but demand for these purposes is limited and does not create new products. "If you own an ounce of gold, you still only have an ounce," billionaire Warren Buffett once wrote.

Warren Buffett in a press interview in 2018. Photo: CNBC — Warren Buffett in a press interview in 2018. Photo: *CNBC*

The 90-year-old billionaire divides investments in the market into three categories. First, cash investments, which include savings accounts, bonds and other similar low-risk investments. Second, productive assets, which can increase in value over time and create valuable assets, such as stocks or rental properties.

Finally, there are assets that do not produce value and gold falls into this group.

William Bernstein, author of the book "The Four Pillars of Investing," believes that when all investment channels go down, gold is the one that can perform well. But in the long run, investors will benefit more from assets that grow and bring profits with compound interest. Therefore, he likes the view of not investing in gold like Warren Buffett.

Generally, when markets are risky, investors tend to flee assets like stocks and seek safe havens like gold and bonds. That means demand for precious metals increases before and during recessions.

Ford O'Neill, co-portfolio manager at Fidelity Strategic Real Return Fund, a mutual fund strategy focused on protecting investors from inflation risk, said that the recent rally in gold is a bit odd in light of that theory. "We're seeing a whole range of assets rallying from stocks to bonds to cryptocurrencies. So why is gold still hitting records?" he asked.

Gold prices tend to move inversely to interest rates, as the precious metal does not pay fixed interest. As a result, when interest rates rise, investors are attracted to higher-yielding investments, such as bonds. Conversely, in a low-interest-rate environment, gold becomes more attractive.

While the current economic scenario may support gold prices, Tim Hayes, global investment strategist at Ned Davis Research, said it should be viewed as a portfolio diversifier. "Don't make gold the backbone of your portfolio," he said.

Xiao Gu (according to CNBC )

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