Warren Buffett emphasized the non-productive aspect of gold in 1998 at Harvard: "It gets dug out of the ground in Africa, or someplace. 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."
In 1977 Buffett was also quoted as saying about stocks, gold, farmland, and inflation: "stocks are probably still the best of all the poor alternatives in an era of inflation - at least they are if you buy in at appropriate prices."
Warren Buffett is a very smart man but not all knowing and not God .
He clearly has a blind spot regarding gold. This may be his downfall and the believers who follow him downfall. His lack of diversification and overwhelming focus on stocks is likely to lose him a lot of money in the coming years, as it has in recent months.
Gold is a safe haven asset and the only asset class that is not someone elses liability and this is why it is thriving in the current environment and ws one of the only asset classes to be up last year. It will likely reach its inflation adjusted high of $2,300 per ounce in the next few years. Gold is the only finite currency - as JP Morgan once testified to Congress, "Gold is money and nothing else". Even more pertinently and more recently Alan Greenspan said "Gold still represents the ultimate form of payment in the world. . . . Fiat money, in extremis, is accepted by nobody. Gold is always accepted" (Speech to Senate Banking Committee in May 1999). This is a very important consideration when central banks internationally are printing currency on an unprecedented scale.
I bought €34,000 worth of gold in Feb 07, it's now worth just over €40,000 which is a 17% gain. Not great but better than any regular savings accounts here and what with the continuing global financial crisis and the dollar decline, I'm holding on to it. If you look at charts of the gold price in € and $, they've followed a fairly similar pattern in the last 8 years, despite € strengthening vs the dollar. Gold & silver = ancient and trusted form of currency worldwide and classic hedge against inflation, where as Euros and Dollars not backed by gold = fiat currency created out of thin air practically.
Jim bob: "deflation will bring down the price of gold over the next few years."
No one has a crystal ball Jimbob and you are likely to be proved very wrong.
2008 saw possibly the worst deflationary crash since the 1930's with major property markets and equity marlets down between 20% and 50% and yet gold was up some 7% in US dollars, 10% in euros and over 40% in sterling terms.
Also worth recalling that during the Great Depression, the Dow Jones fell by 90% and property markets by some 50% and yet gold rose by 60%. The dollar was backed by gold and Roosevelt devalued the dollar and revalued gold by 60% from $22/oz to $35/oz.
Thus even during the worst deflationary crash in modern economic times, gold handsomely rewarded those who owned it.
As ever best to be properly diversified and be prepared for all scenarios - deflation and a possible systemic crash, stagflation and hyperinflation.
I agree with goerage.shaw.
The low inflation and possibility of deflation is mainly due to lots of companies going out of business and the subsequent closing down sales (in my opinion). What also has to be considered is that prices rise when there is more money competing for a limited supply of goods and services. With all the bailouts around the world, printing presses will be working overtime in the next couple of years (especially the US one with a predicted $1trillion this year). Monetary inflation will inevitably lead to price inflation, with a possibility of hyperinflation.
Bottom line is that a well diversified portfolio will include gold regardless of economic environment, and it is a very good 'insurance' against hyperinflation (however large or small that possibility may be).
Plato’s pupil Aristotle rejected soft money and debased currency and believed that money should be gold and silver coinage and not base metal or paper. He advised Alexander the Great and Alexander adopted his hard money system which helped lead to a monetary system based on silver and a stable economy throughout the Mediterranean and in the Middle East.
Gold is the only currency that has retained value throughout history and that is because it is extremely rare. If all the gold in the world were refined (made 0.9999 pure) and formed in a huge cube it would fit nicely on centre court on Wimbledon or beneath the Eiffel Tower.
Basic law of economics is supply and demand. Gold supply is only increasing at some 2% per annum and rate of increase is decreasing whereas international money supplies are growing at between 10% at low end of spectrum to 100's of percent at high end of spectrum.
The supply of gold is very small unlike tin and is finite unlike cocoa beans - more cocoa beans can be produced and crop substitution can take place.
Paper money is not finite and is increasingly being printed and supplied at unprecedented rates which will see the purchasing power of all paper currencies greatly diminished in the coming years. The price of goods will not go up rather our purchasing power will fall sharply once the vicious deflation we are currently experiencing abates.