“Gold gets dug out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”-Warren Buffett
In a recent Fortune article, Warren Buffett provided a glimpse into his upcoming annual shareholder letter. Buffett used this opportunity to once again remind everyone how much he dislikes gold. He cites gold’s limited industrial demand and places the precious metal in a category of assets that “will remain lifeless forever.” However, there are two precious metals that are considered to be monetary safe-havens. Sometimes referred to as gold’s little brother, silver has also acted as a hedge against uncertainty and fiat currencies. Furthermore, its industrial use is far from being lifeless.
Buffett paints another analogy of the world’s gold stock as a useless cube that would fit within a baseball infield. At $1,750 per ounce, this pile of gold would be worth $9.6 trillion. He then visualizes another pile where as an equal amount, you could buy all U.S. cropland, 16 Exxon Mobils and still have $1 trillion left over for “walking-around money.” He wonders what investor with $9.6 trillion would select the gold pile over the latter. While Buffett’s thinking about gold is somewhat understandable, he continues to omit silver from the conversation. Maybe Buffett is still sour from his past venture into the most conductive metal known to man?
Beginning in 1997, the legendary value investor reportedly purchased a whopping 130 million ounces of silver between approximately $4.50 and $6 per ounce. According to Silver Monthly, from 1997 to 2006, Buffett’s investment fund-Berkshire Hathaway-accumulated over 37 percent of the world’s known silver supply. At Berkshire’s annual shareholder meeting, Buffett was asked about the fund’s silver investment. He said, “We had a lot of silver once, but we don’t have it now, and we didn’t make much on our prior holdings. I bought early and sold early.” Although silver trades near $30 an ounce today, Buffett sold his position near $7.50 an ounce. There is heavy speculation as to why Buffett sold his position, but the underlying reasons for holding silver have not changed. In fact, the reasons for building a position in silver continues to grow.
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