Buffett Launches Scathing Attack on Gold Bulls (Article by Alex Plough in Citywire on 10.02.2012)

13 Feb
Buffett launches scathing attack on gold bulls Legendary investor Warren Buffett launched a scathing attack on gold investors in an article for Fortunemagazine yesterday.The chairman of Berkshire Hathaway said gold has no inherent value and investors in it are simply hoping that demand will be greater in the future.

‘What motivates most gold purchasers is their belief that the ranks of the fearful will grow…As “bandwagon” investors join any party, they create their own truth — for a while,’ said the Sage of Omaha.

Comparing the precious metal’s ascent to internet stocks and houses, he warned that a self-inflating bubble was growing as more investors try to ride the rising prices.

‘But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.”,’ he said.

By way of comparison he calculated that all of the world’s gold, about 170,000 metric tons, could be melted into a cube that comfortably fitted within a baseball infield and would be worth around $9.6 trillion (£6.06 trillion).

‘For that, we could buy all US cropland, 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,’ he said.

When investors fear currency collapse that rush to gold, a wise move according to Buffet, but he warned that once this fear passes then the demand for gold will collapse.

‘Should Europe get its collective act together and ultimately resolve Europe’s debt crisis, and if central banks desist from currency debasement, then the premise for holding gold evaporates,’ said Michael Derks, chief strategist at the brokerage firm FxPro.

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