Buffett eschews gold for “productive assets”

Warren Buffett
Warren Buffett

Billionaire investor Warren Buffett has outlined why he avoids gold in favour of “productive assets” in his latest shareholder letter, published by Forbes magazine.

The letter published by Forbes.com, reveals Buffett’s views towards the yellow metal, which he says has two “significant shortcomings”.

He says it is “neither much use or procreative” adding that demand is limited.

Buffett adds: “What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As ‘bandwagon’ investors join any party, they create their own truth – for a while.”

He adds: “Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side.

“At $1,750 [£1,110] per ounce – gold’s price as I write this – its value would be about $9.6 trillion. Call this cube pile A.

“Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually).

“After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?”

Buffett says he prefers “productive assets, whether businesses, farms or real estate”.

“Berkshire’s goal will be to increase its ownership of first-class businesses. Our first choice will be to own them in their entirety – but we will also be owners by way of holding sizeable amounts of marketable stocks,” he adds.

“I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three we’ve examined. More important, it will be by far the safest.”

Buffett’s multi-billion conglomerate Berkshire Hathaway famously began life as a textiles manufacturer and now boasts a number of investments in “productive assets”.