Does Warren Buffett Invest In Gold?
Written by
John Csiszar
Edited by
Susan Kim
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The answer to whether Warren Buffett invests in gold is a simple “no.” This probably doesn’t surprise the “Oracle of Omaha” followers, as he’s been very outspoken and open regarding his investment style, strategies and ownership. He’s even spoken directly about whether he would invest in gold numerous times.
Here’s a quick look at Buffett’s overall investment philosophy, his opinions on gold and whether or not you should own some yourself.
How Does Buffett Invest?
Warren Buffett is what’s known as a value investor. He seeks to find companies trading below what he feels to be their intrinsic value, assuming that the market will reprice them at higher levels. Beyond this broad perspective, Buffett often described the other features he is looking for in an investment, including the following:
- An economic moat, which makes it more difficult for competitors to attack a company’s winning business position
- A quality business at a bargain price, based on several different metrics
- An investment you understand. As Buffett puts it, “I get into enough trouble with things I think I know something about…Why in the world should I take a long or short position in something I don’t know anything about?”
Buffett tries to only make investments with the best chances of working out. Good businesses that he understands keep competitors away and are priced below their true value are the billionaire’s sweet spot. When viewed through these metrics, gold doesn’t fit in.
What Has Buffett Said About Investing in Gold?
Fundamentally, Warren Buffett doesn’t want to own anything that can’t produce something, be it income, revenue or some type of profit. To him, gold is the “classic case” of an investment that doesn’t produce anything. The only way you make money from investing in gold is by hoping someone pays a higher price for it later.
As Buffett told his shareholders at a Berkshire Hathaway annual meeting, “If you take all the gold in the world…and put it into a cube, it will be a cube that’s about 67 feet on a side…but it’s not going to do anything for you.”
Buffett therefore doesn’t see any utility in owning gold because it can’t produce things. Stocks can grow earnings and profits and pay dividends, and farmland produces fruits and vegetables that can be used and sold, but gold just sits there, waiting for someone to come along and decide to pay more for it. That’s not the type of investment that Buffett endorses.
What Are the Potential Upsides of Gold for Individual Investors?
Gold has always been enticing for people to own because of its beauty. From coinage to jewelry, there has always been a demand for gold. This is one of the reasons why people invest because the existing supply of gold in the world is still fairly small and there is always a demand for it.
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Others invest in gold because it’s a hard asset, and it can prove valuable if financial or “paper” assets, like stocks, bonds, and even the U.S. dollar, fall in value or even fail. In an apocalyptic scenario, for example, you can’t buy food or shelter with a paper stock certificate, but physical gold will likely do the trick.
Gold is also seen as a hedge against inflation. As inflation devalues monetary assets – like the U.S. dollar – gold is seen as a store of value, immune to any devaluation from inflation. While gold actually has a bit of an iffy track record in terms of rising during inflationary periods, many investors still view the precious metal as the ultimate hedge.
Should You Invest in Gold?
Whether or not you should invest in gold as an individual investor is a personal choice, based on your financial objectives and risk tolerance. However, in addition to the reasons for investing in gold, you should be aware of the potential risks that come with such an investment.
First, as Buffett often points out, gold doesn’t do anything. It doesn’t create jobs or revenue, it doesn’t produce or manufacture goods or services that can be sold or traded, and it doesn’t pay any dividends. It’s generally an investment that goes up in value when people are afraid, making it hard to predict its future course as it can’t be priced based on metrics like earnings or future growth. Gold also doesn’t have the best long-term track record in relative performance vs. other investments like the S&P 500 index. Lastly, if you invest in physical gold, it’s difficult and expensive to store.
Thus, many advisors suggest investing in gold only as a diversification tool or hedge against market or geopolitical uncertainty. Generally, if you do decide to invest, gold should only occupy a small portion of your overall portfolio.
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