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Monday, 22 January 2018

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Buffet gold conundrum

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This topic contains 2 replies, has 3 voices, and was last updated by  Heather Gorsuch 5 years, 7 months ago.

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    I have been mulling over Buffets recent rubbishing of gold as an unproductive asset and the comparison he made between a cube of all the worlds gold reserves versus an equivalent asset (his comparison) of all of USA farmland plus X number of Exxons.
    But the comparison in my view is deeply flawed. Ultimately, it an inappropriate comparison between income generating assets and money/wealth. If there was no paper currencies and the gold cube represented the only currency tradable for goods/assets then by inference the gold cube would represent the sum of all the worlds wealth as money.
    By deduction then the sum of the whole planets assets on one side of the balance sheet would have to equal the sum of the tradable gold cube as currency to pay for these assets on the other side of the balance sheet?

    Hence, Buffets comparison of this gold cube to solely some USA asset classes is fundamentally flawed as the correct comparison would have to be this gold cube against the whole worlds productive assets?

    Again, deductively this gold cube (as the only form of wealth/payment for the goods/assets to buy on the planet) must therefore be worth many many trillions more than Buffets comparison (in nominal USD terms) OR the assets he is comparing against must be severely overvalued in paper currency


    SCOTT G.

    There are many flaws with Buffet’s comparison.

    First, farmland and oil companies are either tangible assets or control them. But Buffet picks and chooses his “productive” assets. How about the gold cube versus a cube of Solyndra, JP Morgan, and Facebook stock certificates?

    Also, the artificiality of the comparison leads to a flaw. Not even Buffet could afford all the farmland in the US. I would probably choose all that land over the gold cube, but I can only really afford a small parcel, with its associated location risk and lack of liquidity. Therefore, I would take an ounce of gold over the equivalent farm acreage because of gold’s fungibility.


    JIM G.

    All great points. Gold is a store of value. A currency. A proper comparison would have been against the dollar or Euro over an extended period of time. Gold is becoming its own asset class, one where people decide to put there money instead of holding cash.

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