Addison Wiggin

Warren Buffett doesn’t like gold. In this year’s annual letter to Berkshire Hathaway shareholders, Warren Buffett scorned gold as an asset that is “forever unproductive.”

And he’s right about that…

But investors don’t buy gold because they hope it will produce something. They buy gold because they know that no one can produce it. Therefore, the more that folks distrust their national currency, the more they put their trust in the ultimate currency: gold.

The gold price has increased for 11 consecutive years — a time frame during which, coincidentally, it has trounced the investment return of Berkshire Hathaway. Why? Because a new era of monetary destruction is unfolding throughout the Western world. That’s why a growing number of investors are devoting a growing percentage of their investment portfolios to gold and other hard assets.

Rolling 10-Year Return of Gold vs. Rolling 10-Year Return of Berkshire Hathaway

Nevertheless, the American community of gold lovers remains miniscule by comparison to the community of Berkshire Hathaway lovers or Apple lovers. In this sense, Buffett is thoroughly average — he hates gold just as much as the next guy.

Interestingly, however, Buffett is one of the very few billionaires on the planet who scorns gold. In fact, several billionaire investors have disclosed recently that they are taking the other side of the Buffett “sell” on gold.

George Soros, the billionaire founder of Soros Fund Management LLC, raised his stake in the SPDR Gold Trust (GLD) to 85,450 shares from 48,350 during the last three months of 2011. The billionaire hedge fund manager John Paulson also holds a large stake in GLD.

“Paulson made his way into the financial history books thanks to what many now call the ‘greatest trade ever,’” Money Morning reports:

“Paulson & Co. shorted the subprime mortgage market before the collapse, banking a $15 billion gain. So when Paulson went big again by buying gold in 2009 and 2010, investors took notice… In fact, Paulson’s holdings in the SPDR Gold Trust (GLD) make his firm the biggest stakeholder in this ETF, with a position currently valued at $2.9 billion.”

The billionaire “Bond King” is also singing gold’s praises these days. Bill Gross, the guy who founded PIMCO, the $1.3 trillion financial firm dedicated to managing bond portfolios, remarked last month, “Recent central bank behavior, including that of the US Fed… may as well induce inflationary distortions that give a rise to commodities and gold as store of value alternatives when there is little value left in paper.”

One final admirer of gold is neither a hedge fund manager nor a billionaire. This admirer is a trillionaire! Literally.

In 2011, China became the No. 1 importer of gold. China was already the world’s leading gold producer. The Asian juggernaut also reduced its holdings of US government securities last year for the first time since the Treasury began keeping the data in 2001. As of Dec. 31, China held $1.15 trillion in Treasuries, down from $1.16 trillion at the end of 2010.

This reduction doesn’t sound like much, but it’s the trend that’s telling: gold up, Treasuries down.

China's Hong Kong Gold Imports vs. Its Holdings of US Treasury Securities

China is not only the biggest importer of gold, it is also the biggest miner of the precious metal. According to the World Gold Council, China produces nearly 50% more gold (about 300 tons per year) than the second-place country… Australia. And not a single ounce of that newly mined gold leaves the country. By law, the Chinese government buys every ounce of gold that surfaces from a Chinese mine shaft… no matter what.

Clearly, the Chinese are taking the “long view” when it comes to gold accumulation. They believe they can trust gold more than US Treasuries.

Maybe Soros, Paulson, Gross and the Chinese are all crazy to buy gold. Or maybe Buffett is crazy not to. Place your bets!

Regards,

Addison Wiggin,
for The Daily Reckoning

Addison Wiggin

Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He's the creator and editorial director of Agora Financial's daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar, and Why it's Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.

  • CT

    Gold cannot be produced is a questionable statement in the sense it is produced just as oil, coal, copper, tin and numerous commodities. It can also be and is manipulated.

  • Klaus Krauthammer

    Everything is designed to separate me from my money. We haven’t forgot when gold went to $800 and then back to $200. What is different 30 yrs. later is that people from coast to coast are learning that the Federal Reserve owners own us and the gangsterment and when they create inflation they are stealing from us. I believe their bloodlines go to a financial Hogwartz institution to learn deception and the control of money. We go to the university to learn to make more and spend more and be in debt to the vampires who print their fake money. What the hell can we do??? The cradle to grave politicians are perked heavily to keep the lid on this scam.

  • Swami

    “the more that folks distrust their national currency, the more they put their trust in the ultimate currency: gold.” …will they just put their trust only in gold or their ability to do ‘hig frequency trading’ in all commodities and get the retail investors sucked in at wrong times to unload their holdings?
    Swami

  • Karel Kok

    The first chart is not a 10 year chart. It begins in December 2007. Cross your t’s, and dot your i’s.

  • http://www.cnp-keythai.com Laptop exterior accessories

    Sure Gold is the ultimate currency and so far nothing else is really comparable to it. I think not every investments suits people. Even the best investment might not be suitable to many others. Mr. Buffett certainly has his investment media of choice and his choice has brought him best results, we all know.

  • Swiss Genome

    Here is has the GOLD makes the RULES….. Wake up ! The Chinese want to be the Rule Makers !

  • http://StarvingSteve Steve Jacobs

    SELLLLLLLLLLLLLLLLLLLLLLLLL gold @ $1700 per oz, all day, all night, all month, all year.

    And SELLLLLLLLLLLLLLLLLLLLLLLLLLLL bonds that yield 0.25%, all day, all night, and all month, and all year.

    Investing is not hard.

  • http://www.primevalues.org/ PrimeValues.org

    Well, China has been getting rid of its dollars, which also means that more dollars are in the hands of less states/less institutions/less people. More money per smaller number of people could mean inflation – at least regionally.

  • DontFallInLoveWithUrPositions

    Gold just dropped from a near $1900 to below $1400. Oppps. Maybe you should have more respect for one of the richest man in the world who made all his money from investing.

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