- Warren Buffett Incorrect Observations On Gold.
- When we finally do get the spike up in metals, will supply be an issue?
- The psychology of your average buyer of metals.
- Why it makes sense to have some insurance now in physical metals.
When it comes to the gold supply, you must remember the old saying, and I think this saying has lasted through the ages because governments have not with their money schemes;
“He who has the gold, makes the rules.”
Fact: All fiat currencies throughout the history of mankind have ceased to exist.
Fact: Gold has been used as money since Biblical times.
Fiction: The dollar is a safe haven or a risk free asset.
Fiction: Gold is a rock. (it’s a metal, 🙂
Warren Buffett Incorrect Observations On Gold
Warren Buffett is turned to as an expert it seems in gold when he technically makes the same mistake others make when analyzing it. He is known for the following quote;
“I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion dollars – that’s probably about a third of the value of all the stocks in the United States…For $7 trillion dollars…you could have all the farmland in the United States, you could have about seven Exxon Mobil’s, and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon Mobil’s.”
Anyone catch what the mistake is? He is comparing gold to a stock or real estate (farmland). In doing so, he mistakenly considers gold to be their equivalent when for centuries it has only been known as money. This is a wrong headed comparison. Gold should be compared to cubic feet of all the U.S. dollars in the world, both in 1971 and today. Which has maintained its purchasing power over time? Which has grown exponentially in size via a printing press? Which has over $21 trillion of debt backing it?
Sorry Mr. Buffett, you don’t get a pass on this one.
When we finally do get the spike up in metals, will supply be an issue?
This is a question that many will find to be an issue I think in the years to come. I worry about it as a seller of gold. How will my suppliers be able to keep up with demand if individuals lose faith in the currency? That’s the question investors don’t think about now, when the stock market overall has been doing well. They don’t look at gold at all as they think their dollars can be better suited for Warren Buffett’s farm land and Mobil stock. But a prudent investor may want to own all 3. Gold is the insurance that guarantees no matter what happens to the currency you get paid in for your Mobil dividends or sale of stock, or your farmland cash rent, doesn’t lose value by the time it hits your checking account.
There is only so much farmland available and there is only so much gold. Gold is not just a U.S. asset but a world asset. Gold is dug up out of the grand and once sold as an investment as coins and bars, rarely leaves the hands of the buyer. I have been running a company that buys and sell gold and silver coins and bars for 8 years now and the only ones doing the selling, typically are those who needed to sell for a real estate transaction and those who needed to raise cash for other reasons, but “promise to buy it back soon.”
This leads one to assume then that if most who buy gold don’t sell it when it’s been beaten down, no matter where they bought it to begin with, what will drive them to sell it when the dollar is tanking and economy is an extreme mess?
The only other time I get calls to sell is when a child is calling to sell inherited metals.
Supply becomes an issue as the price goes higher. I have witnessed it even with the spike lower on prices as the U.S. Mint runs out of supply. Imagine what a real run to gold would look like?
The other issue is premiums move higher and take a higher percentage of the transaction cost to acquire gold. So what you pay for the gold goes higher sometimes because there isn’t as much of it out there to be had.
The psychology of your average buyer of metals
Charlton Heston used to say about guns that no one will get them unless from “his cold dead hands.” It’s somewhat the same for gold and silver.
When the prices start to shoot higher, and eventually to all time highs, who in their right mind would sell the only asset that is probably moving higher in price and increasing one’s wealth? The mindset of many buyers of gold is different from most in that they view gold as insurance. I have had clients tell me they bought back before 1980 and still have never sold. The 90% silver coins from 1964 and before still buy a gallon of gas today, so why would anyone sell “real” purchasing power that metals provide?
Why it makes sense to have some insurance now in physical metals
There comes a time when one wakes up to what our government has done to our money. Every year it buys you less and less and they don’t even compensate you much to keep it at a bank any longer as they have pushed interest rates to historic lows.
When the price soars, no one will sell and those with U.S. dollars will be scrambling to buy at much higher prices. While I do call the micro view of gold well where we trade the ups and downs of it, a holder of physical gold isn’t as concerned about price as he is about preserving wealth. It will be cheaper to do it now than in the future and you over time maintain your purchasing power.
As the price moves up, gold will become more scarce. When you see the ask price move higher as no one is selling, then you have to pay a lot more to pry it from someone’s hands. The gold dealers themselves will find it difficult to find at some point in time. You’ll find more and more that “he who has the gold makes the rules” does make sense.
We know that gold and silver will always be there for us, but we don’t know what effect the national debt will do to the purchasing power of our dollars. In fact, many don’t even know that we have only had our U.S. dollars or Federal Reserve Notes in existence without a relationship to gold for 47 years. In those 47 years we have gone from a nation with a few billion of debt to a nation with over $21 trillion of debt. See what happens when you don’t put the golden handcuffs of restraint on government? And what makes one think they will stop their abuse of our monetary system? Anyone who stands up in Congress, like Ron Paul did in his day and his son Rand Paul has this year in pointing out government waste, is basically mocked by other politicians. It’s a joke to them. “Just pass the darn debt limit increase so we can go on our weekend trip” they say.
It is truly the Kings and Queens of Congress and we all become Serfs, unless we take control now and diversify into physical metals. They represent the insurance needed against the madness of Congressional spending and Federal Reserve abuses of their own power with the purchasing of assets that no one else wants as they become the “buyer” of last resort.
Stocks are paper assets and subject to there being another buyer, just like gold is subject to finding another buyer. Stocks are convertible to dollars just as gold and silver are convertible to dollars. Only gold and silver are no one else’s liability. And if you own gold, you make the rules. If you own farmland and can’t pay your higher taxes then it can be taken away from you. I prefer to have control of some of my wealth. Warren Buffett’s father knew perfectly well what government’s were capable of.
Doug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534
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