Thursday, February 9, 2012

Warren Buffet on gold and cash

I've been enjoying a new (to me) blog - Kid Dynamite's World.  KD has a really great analysis of Warren Buffet's most recent prognostications on gold and government bonds.

Suffice to say, Warren doesn't think much of gold as an investment class.  

The key point - highlighted by KD is:


He (Buffet) can’t fathom how an investor could chose the cube over the other portfolio of productive assets.  Then he points out this reality:
“Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers — whether jewelry and industrial users, frightened individuals, or speculators — must continually absorb this additional supply to merely maintain an equilibrium at present prices.”

I'm inclined to agree with Buffet.  Gold is not an investment, it is merely a directional bet on a useless asset.   You could make the same bet on, say, nice wine.   At least if that bet goes bad you could still drink the stuff.