by Simon Black, Sovereign Man:

Warren Buffett, despite his extraordinary investment success, has a rather famous and long-standing love/hate relationship with precious metals.

Maybe it started with his dad– Congressman Howard Buffett of Nebraska– who, as a staunch advocate for the gold standard, argued to his colleagues on Capitol Hill that “paper money systems have always wound up with collapse and economic chaos.”

Warren himself acquired a record-setting 128 million ounces of silver back in the late 1990s… which he later sold at a profit in the early 2000s.

But to listen to him talk about precious metals these days, he’s always negative.

Buffett often quips that if you took the world’s entire supply of gold and melted it together, it would form a cube of about 68 feet (~21 meters) per side and be worth around $9 trillion.

With that same $9 trillion, you could buy every share of Apple, Disney, Google, Microsoft, JP Morgan, Exxon Mobil, all the farmland in the United States, all the developable land in Manhattan, and still have more than a trillion dollars left over.

This is Buffett’s central argument: gold doesn’t produce anything. So it’s much better to invest in a productive asset like a business, farmland, etc.

Sure, I’d rather own a profitable, productive asset than a pile of metal.

But Buffett is completely wrong to compare gold to productive assets… they’re apples and oranges.

Gold isn’t an ‘investment’. It’s an insurance policy against paper currencies will lose value over time. So a MUCH better comparison for gold is CASH.

Using Buffett’s same thought experiment, would an investor with $9 trillion rather have all that money sitting in a bank earning 0%? Or buy all the productive assets I mentioned above?

Clearly it’s more attractive to own productive assets than cash sitting in a bank.

Now, most people obviously don’t have hundreds of billions or trillions of dollars to invest.

But foreign governments, pension funds, central banks, and Sovereign Wealth Funds do.

And if it were so easy to simply buy up all the farmland in the United States, or every share of Disney, etc. they would have done it already.

But life isn’t so black and white. Negotiating and closing a very large investment deal takes a lot of time and hard work.

Buffett himself understands this. That’s why he made only ONE major acquisition in 2017 (a chain of gas stations called Pilot Flying J) and ZERO in 2018.

Buffett’s company has $700 billion in assets and over $100 billion in cash; it’s extremely difficult to find enough large, credible deals to invest that much capital.

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