Uncle Warren and his 88-year-old sidekick Charlie Munger are at it again.
In an interview last week, Munger told Becky Quick on CNBC: "Gold is a great thing to sew into your garments if you’re a Jewish family in Vienna in 1939, but I think civilized people don’t buy gold, they invest in productive businesses."
One might want to remind the old man that people who bought gold a decade ago were far better positioned than those who put their money in Mr. Munger’s company, Berkshire Hathaway...
For the value of a share of Berkshire Hathaway has collapsed over the past decade to barely more than 74 ounces of gold from the 238 ounces it was worth a decade ago.
In fact, blue chip gold miners have outperformed Berkshire Hathaway by nearly a factor of five this past decade.
Munger’s comments come two months after Warren Buffett denounced gold as a bad investment in his letter to shareholders:
Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce — gold’s price as I write this — its value would be about $9.6 trillion. Call this cube pile A.
Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 ExxonMobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?
Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers — whether jewelry and industrial users, frightened individuals, or speculators — must continually absorb this additional supply to merely maintain an equilibrium at present prices.
A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops — and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.
Now, a skeptical person could easily discount Munger's and Buffett's disdain for gold as “talking their own book.”
You could even call it sour grapes, since gold has crushed Berkshire Hathaway’s performance over the last decade.
But I think Buffett’s hatred for gold is political.
You see, I believe Uncle Warren hates gold bugs...
He hates what they stand for; he hates their views on money, the United States, and the economy.
Go to any gold conference, and you’ll be hard-pressed to find Liberals, progressives, or Democrats among audience members.
That’s because — for the most part — gold bugs are serial savers, anti-government spending, anti-Federal Reserve, and super suspicious of any government action.
Uncle Warren is the complete opposite.
As I write this, gold is sitting around $1,610 an ounce. Silver is below $30.
Gold miners — and especially the junior miners — have puked up blood, sitting at annual lows.
However, demand has never been higher for the yellow metal...
Mainland China’s gold imports from Hong Kong surged more than sixfold in the first quarter, adding to signs that the country may displace India as the world’s largest consumer of the precious metal on an annual basis.
Imports from Hong Kong were 135,529 kilograms (135.53 metric tons) between January and March, from 19,729 kilograms in the year-earlier period, according to data from the Census and Statistics Department of the Hong Kong government.
Yesterday's data showed shipments in March rose 59% from February.
According to a Reuters report:
Demand has climbed in the world’s second-largest economy as rising incomes and curbs on property speculation boosted purchases. China may become the biggest user annually this year, according to a forecast from the producer-funded World Gold Council. Last year, total Indian demand including for jewelry and investment was 933.4 tons to China’s 769.8 tons.
The prospect of China becoming the largest bullion user reflects the country’s economic ascendance. Per capita gross domestic product has more than doubled since 2000, according to World Bank data. The country is already the world’s top consumer of copper and biggest producer of steel.
Gold shipments to the mainland climbed in March to 62,913 kilograms, the Hong Kong data showed. That compares with 39,668 kilograms in February and 9,166 kilograms in March 2011. China doesn’t publish gold-trade data. Last year, imports from Hong Kong more than tripled to 431,226 kilograms.
The purchases through Hong Kong may signal that the mainland is accumulating reserves, London-based brokerage Sharps Pixley Ltd. said in February. The nation last made its reserves known more than two years ago, stating them at 1,054 tons.
In light of Buffett's and Munger’s comments arises a necessary question...
Do they think the Chinese are uncivilized for buying gold, or do they reserve their disdain for Americans who are suspicious of the Federal Government?
Right now, junior resource stocks are the cheapest I’ve seen in years, with many selling at or below their cash positions.
That’s an indication that investors in this sector are selling out of fear and panic. And that means these stocks are a screaming buy.
Just ask Uncle Warren.
The original bull on America,
Brian is a founding member and President of Angel Publishing and investment director for the income and dividend newsletter The Wealth Advisory. He writes about general investment strategies for Wealth Daily and Energy & Capital. Known as the "original bull on America," Brian is also the author of the 2008 book, Profit from the Peak: The End of Oil and the Greatest Investment Event of the Century. In addition to writing about the economy, investments and politics, Brian is also a frequent guest on CNBC, Bloomberg, Fox and countless radio shows. For more on Brian, take a look at his editor's page.