Useless Gold

By Ramesh Akkineni

Warren Buffett and Charlie Munger at Berkshire Hathaway's annual meeting 2005

Q: Can gold be a good substitute for a paper currency?

WB: I’m not crazy about gold as a hard asset, compared to, say, oil, See’s candies, or Coke. If the value of the dollar dropped by half, we’d sell See’s chocolates at twice the price. I prefer hard assets that are useful. I wouldn’t trade ownership of See’s for a hunk of yellow metal that has little use. When I was a boy we all used to get lectures from my father at the dinner table about the virtues of gold. Gold sold for $35 an ounce in 1940, and it sells for around $400 an ounce now. That’s not a very good return, especially when you consider the cost along the way of storage and insurance.


Q: Don’t you think you have an obligation to have a position in gold?

WB: Gold is way down on my list as a preferred store of value. I’d prefer to own 100 acres of land in Nebraska, or an apartment house, or an index. We talked about gold being worth $35 an ounce in 1940—only its price was fixed then. If you go back to 1900, gold sold for $20 an ounce, and has risen to just $400 since then. And a holder would have to pay for insurance and storage. The Dow, by comparison, was at 60 or so in 1900; it’s now around 10,000—and has paid dividends along the way. Gold is just about the last thing we’d want to own. Other alternatives have utility, which gives them value. I’d rather have the ability to sell a pound of candy 20 years from now. I don’t see gold as a good store of value. About 3,000 to 4,000 ounces get taken out of the ground every year, and some amount gets reburied in the New York Fed. In between, gold doesn’t have much use.

CM: Gold had great utility, in the form of portability, to Jewish families in Vienna in 1935.

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