On Wednesday, gold fell from near a 19-month high as risk appetite in the global markets improved, despite ongoing fears regarding Russia’s invasion of Ukraine.
Despite the latest decline, though, bullion is still up 9% on the year while investors hedge against the ongoing threat of inflation. Aside from its utility in hedging against inflation in uncertain times, with an average daily trading volume of $183 billion, gold is one of the largest financial assets in the world.
The commodity has seen explosive growth in recent years. It was priced at just $460 per ounce at the beginning of 2000, when adjusted for inflation, but by August 2021, that number had exploded to roughly $1,815 per ounce.
Not all investors are in love with gold, though. Warren Buffett has spoken out numerous times on his doubts, famously denouncing it an asset “with “no utility” in a 1998 Harvard speech.
Why is this a big deal? Buffett is revered by many as the godfather of modern-day investing. The 91-year-old business magnate, investor, and philanthropist bought his first stock at age 11 before moving on to own multiple Fortune 500 companies. With a net worth of over $85 billion, in 2019 the Berkshire Hathaway CEO was declared the third-richest man on the planet.
Notoriously, Buffett seeks out investments in resilient companies that are trading below intrinsic values on the stock market and will increase in value over time. He might be old-school, but given his successful investing career, it makes sense that investors want to keep a close eye on his investments. They don’t call him the Oracle of Omaha for nothing.
Despite his tendency to choose low-risk investments, however, Buffett has been very vocal about his disinterest in investing in gold. After surprising many with his purchase of US$565 million Barrick Gold shares in the second quarter of 2020, Berkshire Hathaway sold off the stock in its entirety by the end of the year.
Why? Buffett’s disdain for gold and proclivity for silver arise from his basic value investing principles. The Oracle of Omaha equates value with usefulness, and once quoted as saying, “[gold] doesn’t do anything but sit there and look at you.”
Despite the magnate not having a taste for gold, he does still invest in precious metals. He just prefers silver. In fact, in 1997 Berkshire Hathaway bought almost $1 billion of silver in 1997 , in a trade that worked out quite well for Buffett and his investors.
Buffett prefers silver over gold because silver has an abundance of diverse applications, like its industrial utility for water purification and medical utility in bandages, catheters, and help heal burns and other health conditions.
In addition to the fact that it doesn’t corrode, silver is also used in electronics, where it is one of the most useful conductors of electricity. This attribute means it’s used extensively in wiring and connective parts, computers, cellphones, and cameras.
Because of silver’s diverse utility and usefulness, it’s obvious why Buffett prefers to invest in the commodity over gold. Although gold has its application in its market value for jewellery, the commodity has nowhere near as many practical applications as silver, at least according to the godfather.
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