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Buffett sheds light on gold

Noel Whittaker, Director of Whittaker Macnaught Pty Ltd
Noel Whittaker, Director of Whittaker Macnaught Pty Ltd

INVESTORS love to buy anything that appears to be in a permanent up trend.  This is why gold has become the flavour of the month as everybody rushes to get on board before it doubles in price again.

Gold has never been a favourite of mine because the price depends entirely on investor expectations - if the majority of traders think the price will rise and they all start to buy, gold prices will go up.  Conversely a pessimistic mood in the market will cause prices to fall.

Warren Buffet is one of the world’s smartest investors – this is what he thinks about gold.

"If you took all of the gold in the world it would make a cube roughly 67 feet on each side. At today’s prices that cube of gold would be worth about $7 trillion - probably about a third of the value of all the stocks in the United States."

Buffet summed up the difference between investing in gold and investing in productive assets. If he chose the gold all he could do would be to look at it, touch it and fondle it occasionally. If the alternative was all the farm land in America including all the cotton, corn and soy beans and seven ExxonMobiles and in addition $1 trillion of walking around money "you might call me crazy, but I would take the farmland and the ExxonMobiles anytime". 

I have never heard it put better. When you buy gold you are doing nothing more than having a flutter on a commodity price and hoping you will be lucky enough to buy on the up trend. In contrast, investing in blue chip shares gives you the opportunity to share in the profits of well run businesses that are growing as the economy does. Best of all they pay you an income that you can re-invest or spend.

Noel Whittaker is a director of Whittaker Macnaught Pty Ltd. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. His email is noel.whittaker@whittakermacnaught.com.au.

Topics:  gold warren buffett



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