Warren Buffett is an investing icon, and when he talks about the stock market, individual investors and Wall Street insiders alike take notice. But perhaps Buffett’s most controversial investment advice regards gold prices. Gold bullion, gold miners and gold ETFs simply have no place in Warren Buffett’s portfolio. And to hear Buffett tell it, gold should have no place in yours, either.
So why does Warren Buffett hate gold so much? Well, the famous value investor has been pretty clear on this. In a word, gold is useless.
Just look at what Warren has said publicly about gold. As early as 1998, Buffett was criticizing gold bugs. The oracle of Omaha emphasized the non-productive aspect of gold in a speech at Harvard that included this gem:
[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.
More recently, in 2009, he echoed these thoughts in a CNBC interview. He was asked, “Where do you think gold will be in five years and should that be a part of value investing?”
I have no views as to where it will be, but the one thing I can tell you is it won’t do anything between now and then except look at you. Whereas, you know, Coca-Cola will be making money, and I think Wells Fargo will be making a lot of money and there will be a lot — and it’s a lot — it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that.
In October 2010, Warren Buffett told Ben Stein:
You could take all the gold that’s ever been mined, and it would fill a cube 67 feet in each direction. For what that’s worth at current gold prices, you could buy all — not some — all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?
He has certainly stayed on message over the years. Key talking points for Buffett appear to be that gold is expensive to store, has no practical use and doesn’t generate and income. Those are all pretty good reasons to hate gold.
However, whatever Warren Buffett’s reasons may be, it’s hard to argue against performance.
In 1998, when Buffett made his remarks at Harvard, gold averaged around $300 an ounce for the year — meaning the precious metal has quadrupled in value! Buffett’s Berkshire Hathaway (NYSE: BRK.A), on the other hand, has tallied gains of only about 150% from its 1998 lows to present day. That’s three times the broader market, but doesn’t come close to gold prices.
In the short term, however, the results are mixed. At the time of the March 9, 2009, CNBC spot, gold closed at about $923 an ounce — meaning the precious metal has gained about 50% since that date. Berkshire Hathaway stock, on the other hand, has outpaced gold. And at the time of the Ben Stein interview on Oct. 19, 2010, gold was trading at $1,339 an ounce. That’s about a 15% gain compared with a small loss for Buffett’s Berkshire Hathaway in the same period.
It’s hard to tell what the future holds for gold prices. But one thing is for sure — Buffett will continue to sit out the gold rush. The billionaire investor hasn’t changed his tune on gold just yet, and it’s hard to believe that he will change course anytime soon.
Jeff Reeves is editor of InvestorPlace.com. Follow him on Twitter at http://twitter.com/JeffReevesIP.