Monday, March 5, 2012

Critics Examine Buffett’s Gold Claims

Legendary investor Warren Buffett has been making the financial news rounds with his claims that gold is “valueless,” and that the metal is experiencing an exaggerated bubble that is set to burst sooner rather than later. On the Edge host Max Kaiser asked Ned Naylor Leyland of Cheviot Asset Management on his opinion of Buffett’s gold rhetoric, and Naylor responded that Buffett must have an ulterior motive for the claim considering gold’s performance as compared to Buffett’s own Berkshire Hathaway. Kaiser went further, labeling Buffett a “financial terrorist” whose meddling in banking institutions and broader impact on the financial markets tinges the investor’s comments with dishonesty. For more on this continue reading the following article from Tim Iacono.

Max Keiser talks to Ned Naylor Leyland of Cheviot Asset Management about why Warren Buffett hates gold after the “Oracle of Omaha” devoted a considerable portion of his recent shareholders letter(.pdf) to discuss why the metal is not worth owning.

Among the many other interesting things you’ll learn from Ned is that Warren Buffett’s father was the “Ron Paul of his day”, meaning that, Buffett the Younger’s views toward the yellow metal are likely something he didn’t learn at home.

This blog post was republished with permission from Tim Iacono.

1 comment:

Unknown said...

Buffett is a smart guy and correct in suggesting that gold can't be valued like cash flow producing assets, even other tangible assets such as farmland. However he is failing to understand why gold is valuable. Aside from the many uses of this remarkable material (virtually corrosion proof, super malleable, etc.) it is a tangible asset that is ultra liquid. Most tangibles are not particularly liquid. Hence gold can serve as safe harbor when the ultra liquid assets we normally hold in order to facilitate transactions, the national currencies, are being debased.

There is a widely held class of assets which are in fact inherently worthless...every national currency in the world. For the first time in human history all national currencies are totally fiat, backed by absolutely nothing, hence subject to debasement. They are literally IOU nothings, not truly liabilities of the various central banks, and are held only because people believe somebody will take them later in exchange. Today most currency isn't even printed. National currencies are largely created through nothing more than accounting entries. Imagine a world in which we could log on to our bank accounts and add zeros. How long would it take to add a dozen zeros to your account? How much wealth is created when you add those zeros? Anyone see the problem with this option?