Why Value Investors Should Buy Gold
For all the gold that's ever been mined, you could buy every acre of farmland in the U.S. and 10 companies the size of ExxonMobil... and still have $1 trillion left over.
Would you rather have a shiny cube of metal, 67 feet on a side... or trillions of dollars of assets that actually produce wealth?
That's essentially what Warren Buffett, the world's most successful and famous investor, wondered in a 2010 interview with Fortune.
Buffett doesn't like gold because it's got no intrinsic value.
In a way, he's right. Most of the gold in the world just sits around collecting dust. Very little of it is used for industrial purposes. With the high price an ounce, industrial gold users will likely use as little of the stuff as possible.
But here's what he's not seeing...
In 2010, I wrote:
Never forget what's at the bottom of the banking system: the Federal Reserve as lender of last resort, with its unique ability to print as much money as it wants in order to have enough to lend into the banking system.
The money-printing I worried about is well underway... and is unlikely to stop anytime soon.
The Fed pretends it's a sophisticated operation with an array of complex, surgical-grade financial tools. But it's really an imbecile with a hammer. The hammer is money-printing, and every economic problem is a nail.
So you should always own gold.
I'm not saying gold and silver are cheap, though relative to dollars, I believe they are cheap. I'm saying the world's most well-known, well-liked, and widely held standard of value (the U.S. dollar) is a poor standard of value. In fact, it's a phony standard of value.
It's easily created – at the touch of a button nowadays. Does that make sense to you? Have you ever in your life created anything of value without putting effort into it?
Value isn't created easily, on a whim. Value is created by employing capital productively... the way gold and silver are made. You should own gold and silver, because they're the ultimate standard of value.
Gold is the asset that can't be inflated, yields nothing, and is no one's liability. It's real wealth... pure wealth... the most enduring form of wealth in history.
Let's be clear. I'm not talking about exchange-traded funds, precious metals mutual funds, gold mining stocks, silver mining stocks, gold- or silver-indexed preferreds, or paper certificates of any kind. They have their place, but that's not what I want you to buy.
I'm talking about physical gold, in the form of bullion coins. I'm not talking about speculating on the price of the commodity. I'm talking about exiting paper dollars and putting your savings in real money.
For gold bullion coins, I buy and recommend Krugerrands. The premiums are usually low. There's plenty of supply. And it's the most widely circulated gold bullion coin in the world. For silver bullion, I buy whatever one-ounce, 0.999 fine silver rounds my coin dealer suggests. I've been going to the same guy for years. He knows me when I come in, and he knows I like the coins with low premiums.
I recommend putting 10% of your investable assets in both gold and silver bullion. Buy it. Hide it somewhere you'll always have access. Buy physical gold and silver to preserve the purchasing power of the wealth you've created. Do it to protect yourself from the Fed's war against the dollar. Do it because gold is the ultimate standard of value.
The only reason most value investors don't like gold is that Warren Buffett doesn't like gold.
Believe me, I'm only human. I've fallen under the spell of a big name money manager a time or two. But if Buffett and his followers want me to believe that paper makes better money than gold, that paper keeps mischievous men from degrading my wealth better than gold, that gold isn't a more enduring standard of value than anything else that's ever been tried... they're going to have to keep talking, because I'm not anywhere near convinced.
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