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Gold For Buffet

I have never been too enthusiastic about buying gold jewelery, the closest I have come to buying gold is in form of Gold Exchange traded funds.  Even at the cost of repeating I would like to give following reasons against the same:

  1.  As an asset class it does not produced any income. It just sits there either in earth, or in somebody's  locker ( yours or your  bankers or  your ETFs)
  2. It is an asset that people invest in when they are looking for security e.g when they fear paper money will loose value, or during time of crisis. ( in its physical form)
  3. The value of gold is not because it can do some thing or produce an income for you  but because you hope one day some body will pay you a higher price for the same to you , than you paid for it ( not very different from buying a piece of art for the sake of appreciation). Not very different from the greater fool theory.
But now a days everybody wants to buy a  piece of gold in one form or other, as every body says that it will increase in price. The reason being given are:
  • Fear in market due to  crisis in middle east.
  • Rising oil prices
  • Stupidity of all governments in printing paper money ( Including or rather specially US)
  • Adjusted for inflation it is still not at its peak.
I am not sure if any of the points above are correct or not. Then I heard an interview from Warren Buffet the Oracle from Omaha, who is what every investor wants to be.

So this is what Mr.B has to say about gold:
  • If you take all the gold in world ever dug out of earth  and stack it together it will form a cube of gold about 65 feet in each direction.
  • This gold will just sit there, doing nothing, though making you happy and once in a while  I (Mr. B) may fondle it to feel good.
  • This gold will be worth a few trillion dollars.
  • You can buy all the farm land in continental USA with this money, 7 Exxon Mobile corporations (one of the largest oil producer) and still would be left with a more than  Trillion dollars to spare. ( To put things in perspective the richest man on earth has 70 Billion USD, a far cry from a Trillion $$$s)
So what would you take ? all the farm land in USA that produces, wheat, soybean, cotton, fruits, etc and 7 Exxon Mobile companies that will give you dividends for a long time or a pile of gold that you hope one day somebody will pay you a price higher than you paid.
I think its a no brainer and I would take the Farmland and Exxon Mobiles and the spare trillion dollars, what am I gonna do with a pile of gold? Eat it? Wear it ? Sleep on it ? I don't think so.
Does this means the price of gold will not go up? Well it may but does it means you should invest in it? You decide. If  you are looking for some diversification go for it, but buy Gold ETFs and not physical gold. But don't forget to get out while you have some buyers out there, because once it reaches a point when there are only sellers and no buyers you never know what will happen.

Thanks for reading, do leave a comment.

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