Is gold a good investment?

I know I normally write about property, but as some readers of my blog hold other investments, I wanted to share some thoughts from Warren Buffett.

Yahoo quotes Buffett and his thoughts on gold and those who worship it.

In Fortune he explains why gold is generally a poor investment, even if its price in dollars goes up from time to time (as it has over the past decade).

If you molded all the gold in the world into a cube, Buffett says, it would be about 20-metres per side. This is about 1 metre shorter (and considerably wider) than a tennis court.

As Buffett observes, it would fit comfortably in the middle of a baseball infield.

The value of all that gold at today’s prices, Buffett observes, would be about $10 trillion.

As for its merit as an investment, Buffett observes the following:

  • The cube of gold will produce nothing in the next hundred years (or, for that matter, thousands of years).
  • The cube of gold will not pay you interest or dividends, and it won’t grow earnings.
  • You can fondle the cube, but it won’t respond.

If you had $10 trillion sitting around, Buffett further observes, instead of buying the cube of gold, you could buy all the cropland in America ($400 billion-worth) and 16 Exxon-Mobils. And you would still have $1 trillion of “walking-around money.”

Over the next hundred years, your Cropland and Exxon-Mobils would produce trillions of dollars of dividends (the size of which would be adjusted for inflation), and you would still have them at the end of the century, at which point you could probably sell them for vastly more than the $9 trillion you bought them for.

So, which investment would you choose?

For the cube of gold to be the smarter investment, Buffett observes, you would have to be convinced that you could persuade someone else that the cube of gold would be an amazing investment at your asking price.

Because that’s the only way you can ever make money in gold—if there’s someone out there who is willing to buy it from you for more than you paid for it (and pay enough to offset the costs you have incurred from storage and insurance in the meantime).

Meanwhile, your Cropland and Exxon-Mobils would likely keep throwing off tons of cash even if the market for them completely dried up.

Thus, Buffett has no doubt about which investment will return more over the next century—or which one he would choose.

 

icon-podcast-large

Subscribe & don’t miss a single episode of michael yardney’s podcast

Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.

Need help listening to michael yardney’s podcast from your phone or tablet?

We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.

icon-email-large

Prefer to subscribe via email?

Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.


Avatar for Property Update

About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'Is gold a good investment?' have 3 comments

  1. Avatar for Property Update

    March 14, 2012 vasilija wilson

    Thank you Michael
    Yes it is true that house is worthed much more then gold …. thinking logicly.

    Reply

  2. Avatar for Property Update

    March 13, 2012 Wayne Slager

    I’m sorry but even Warren Buffett can be wrrr … wraa …. yes, wrong. I know that’s a big call but his argument is fundamentally flawed as gold is NOT an investment … it’s a store of wealth and should only be seen as such. Anything more, in terms of price rises, is a bonus. Interestingly, the gold price has increase over the last 10 years from around USD$300oz to about USD$1,700oz today.

    How many people bought a house for say, $300K 10 years ago (did absolutely nothing to it, and left it vacant) and saw its value rise to $1.7M? On that basis, who’d care about income or tax breaks?

    But as I said, gold isn’t about income or growth – it’s about preserving your wealth – and in today’s highly volatile global environment it makes sense to me to tuck some of my wealth away so it’s not subject to being debased and inflated away as all fiat currencies, ie paper money, are.

    Having said that, I’m still a big property fan as I can still enjoy income and manage/ manufacture growth. This complements rather than competes with gold. It doesn’t have to be either or.

    Reply

    • Avatar for Property Update

      March 14, 2012 Michael Yardney

      You’re right Wayne
      Many of those who buy gold have bought it a safe haven to store their wealth

      Reply


Would you like to share your thoughts?

Your email address will not be published.
CAPTCHA Image

*


facebook
twitter
google
0
linkedin
0
email
Michael's Daily Insights

Join Michael Yardney's inner circle of daily subscribers.

NOTE: this daily service is a different subscription to our weekly newsletter so...

REGISTER NOW

Subscribe!