Monday 18 December 2017

Buffett warns that 'gold bubble' will burst just like property did

Billionaire investor Warren Buffett. Photo: Getty Images
Billionaire investor Warren Buffett. Photo: Getty Images

Charlie Weston Personal Finance Editor

GOLD buying is for losers, the most successful investor in the world has warned.

Warren Buffett, who is estimated to be worth close to $40bn (€30.6bn), said he had a preference for investments in real productive assets over the yellow metal.

The world-renowned investor noted in his recent shareholder letter that gold performance was driven by fear. He said the metal should be a non-starter for investors because it was only worth what someone else was willing to pay for it.

Other experts disagree, however, citing several reasons why we should expect gold to perform; from the interest of central banks in its acquisition to the metal's position as a commodity in growing demand and a finite supply.

But Mr Buffett ripped into the intelligence of owning gold.

He said the real demand for gold, defined as industrial and decorative, was incapable of soaking up new production and that the gold you own did not 'do' anything.

At the end of the day, gold was just an ounce of gold worth whatever someone was willing to pay for it, he said.

He acknowledged that gold had had a 10-year bull market but he said this was largely due to fear in the marketplace, which triggered a flood into the hard asset.

But he wrote in his annual letter to shareholders in his Berkshire Hathaway investment vehicle that the rally would not last "as bandwagon investors join any party, they create their own truth -- for a while."

Mr Buffett used the internet and housing bubbles as examples of rising assets that fuelled their own fire until those bubbles burst.

With all the gold in the world amounting to $9.6 trillion (€7.4 trillion), he said the same amount of money could be used to buy all the farmland in the US and 16 Exxon Mobile oil companies and still have $1 trillion left over.

Since 2001, gold has rallied 539pc while Exxon has climbed by 90pc.

Gold was trading up 0.3pc at $1,725.50 a troy ounce yesterday.

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