Keep your gold, Buffett will stick with Blizzards. Image by AFP via @daylife
Warren Buffett has long been resistant to gold fever, frequently dismissing the yellow metal as an investment because it produces no income, most recently bad-mouthing the asset in his annual Berkshire Hathaway shareholder letter.
At least one gold backer is returning fire though. Chris Goolgasian, a senior portfolio manager at State Street Global Advisors, which oversees the $69.9 billion SPDR Gold Trust exchange-traded fund, pointed out in a recent report that Buffett’s disdain for the metal hardly disqualifies it as a big winner for investors.
In a piece titled “In Gold We Trust?,” Goolgasian runs through the various reasons why investors might want to hold gold before coming back to the Oracle of Omaha’s central criticism. (That criticism in brief: the world's entire current gold stock, worth around $9 trillion, will deliver nothing to its owners over time, while a collection of assets worth the same -- say 400 million acres of U.S. cropland and 16 Exxon Mobilswould produce valuable resources and trillions in dividends.)
“[Buffett] points out that [gold] has no earnings, yield or way to return cash to the investor,” he writes. State Street admits as much, Goolgasian continues, but “that doesn’t mean one can’t make money in gold.”
The piece makes the valid argument that just because Warren Buffett doesn’t like an investment does not make it a foolish bet. “While he won’t own gold, he also never owned Apple (up around 1,500% since January of 2000) or Google (up 530% since August of 2004) or shorted subprime mortgages,” Goolgasian says, before noting that Berkshire’s 105% gain since January 2000 pales in comparison to gold’s “nearly five-fold” gain over the same period.
“It strikes us,” Goolgasian continues, “that Buffett believes that only asset classes and investments that fit his specific investment beliefs can be sensible investments. We, however, are agnostic about how to beat the market. We just want to do it.”
None of this is to say that gold is not in a bubble, a possibility he acknowledges. But even in a bubble, as long as you aren’t the last person buying you can make money. That argument is valid, but as a compelling reason to invest in gold at present – an ounce was going for slightly more than $1,700 Monday – it leaves something to be desired. In other words, Goolgasian has a point, but so does Buffett.
Shares of the SPDR Gold Trust were down 0.3% at $165.81 Monday. Berkshire Hathaway's A shares were up 0.5% at just over $118,000, while B shares gained 0.6% to $78.73.