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Aug. 20, 2020-
Warren Buffett, who is considered the best investor of all time, once raised some eyebrows.
Mr. Buffett has always stressed faith in American enterprise and to pick the right investments and to stay with them long-term. He’s always condemned gold as an investment.
For obvious reasons at this writing, he has a net worth of $78.9 billion.
But his firm Berkshire Hathaway put money into Barrick Gold, which pays a dividend.
Meantime, published reports indicated hedge funds have been warning investors about gold and a so-called consolidation phase.
This, as the gold market continues to expand.
Bank of America
Contrasting Mr. Buffett’s turnabout on gold, the Bank of America asserts gold is too crowded in the financial markets in its August Fund Manager Survey. Gold is second just behind tech-sector stocks.
UK fund manager Mark Mobius of Mobius Capital Partners says investors should wait for a correction in gold.
“The safest investments are equities and precious metals such as gold. However, I would not advise buying gold or precious metals at this time until a price correction has taken place,” he was quoted in Kitco News.
Investing Principles for New Investors to Minimize Risk
Instead, he recommends buying companies “with strong balance sheets and growing earnings.”
Regarding gold, my sense is that it’s a bad investment and too big a risk from volatility.
Fear-based investment
Gold is a fear-based investment. People buy it for the wrong reasons.
They fear the dollar or other currencies are shaky. They have little too-little faith in the U.S. economy.
Until the pandemic, President Trump had created the best economy in the history of the U.S. I think he’ll do it again.
For years, we’ve been in a low-inflation situation.
Federal Reserve
The cost to acquire money and the overall for demand for credit are nil. That means the Federal Reserve is keeping interest rates low, and gold or silver are a waste of money and the time to consider buying it as the environment has to change.
Gold prices are superficially propped up by demand from investors. In essence, the investment in gold now is really the recycled supply for the future.
That can change in 24 hours because many gold investors are fickle and switch from gold to other investments.
The reality is that gold doesn’t have any earnings, which also means it doesn’t pay dividends like good stocks.
The Fed has been keeping interest rates very low for liquidity reasons.
And it’s worth noting gold hates higher interest rates. As soon as the threat of COVID-19 evaporates when the vaccines are approved, the interest rates will rise.
You might note gold is priced in U.S. dollars and it has benefited from the weak dollar. A lot of people have been getting into gold, which means it’s a crowded investment sector and is oversold.
It also means the dollar will get its strength back, forcing the price of gold to decrease.
With the federal government borrowing so much and printing money, gold is relatively high and might explain Mr. Buffett’s decision.
Despite his legendary expertise, I remain skeptical about his decision, as the current massive borrowing and printing money is unhealthy for America and is not sustainable.
From the Coach’s Corner, for late-breaking analysis and events on Wall Street, see the Business video page in The Biz Coach Newsroom.
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“Price is what you pay. Value is what you get.”
-Warren Buffett
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