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Warren Buffett’s distaste for gold is no secret to those who keep up with the sage’s thoughts and ideas. He has criticized gold publicly on many occasions. His objection is simple: It doesn’t have the capacity to flourish and grow the same way companies can. It has no practical utility. The Oracle of Omaha isn’t wrong on that point, of course. But does that really mean gold has no value in a portfolio?
Most gold owners include it in their portfolios to gain its protective qualities. Gold is primarily a safe-haven asset. Yes, history shows it has the capacity to appreciate long-term. But its real value lies in its tendency to strengthen during economic turmoil and market volatility.
Given this well-known property of gold, it’s curious to me that Buffett doesn’t embrace it. It’s doubly curious when you read his recent annual letter to Berkshire Hathaway shareholders. He admits that the financial markets and risk assets he holds so dear are inherently vulnerable. Buffett’s gold avoidance is interesting, to be sure. But individual retirement savers should focus on the market vulnerability. It’s one of the most important reasons to include safe-haven assets such as gold in a portfolio. Even if Warren Buffett chooses not to include it in his.
Buffett: Anything Can Happen to Financial Markets Tomorrow
A recent article at MarketWatch by Nigam Arora focuses on what he says is “a gem in Buffett’s annual letter…that nobody is talking about.” Here is the “gem” Arora refers to:
“Anything can happen to stock prices tomorrow. Occasionally, there will be major drops in the market, perhaps of 50% magnitude or even greater.”
Arora finds it remarkable that someone so fond of financial markets is willing to declare they can collapse at any time.
The current coronavirus outbreak (COVID-19) is a great example of Buffett’s point.
Before COVID-19, financial markets were fragile due to longstanding overvaluation. This fragility, combined with the weakness of the global economy, has made the markets particularly susceptible to a negative trigger event such as the new coronavirus.
Concerns about the coronavirus and its effects on the global economy became exponentially greater over the last week or so. During this period, markets have fallen apart. As a matter of fact, major indexes fell into correction territory at the fastest rate in history. The S&P 500 went into a correction in just six sessions.
It’s just as Warren Buffett says. Anything can happen to markets tomorrow.
Gold Demonstrates Its Safe-Haven Value Time After Time
Fortunately, during stretches of great economic turmoil through history, when Buffet’s favored financial markets have fallen sharply, the yellow metal has flourished.
The new coronavirus outbreak has been in play since the beginning of this year. Over the last nine weeks, the price of gold has risen 10% as the health crisis worsened.
In the last quarter of 2018, global markets fell by roughly 14% as trade war fears surged. During the last three months of that year, gold climbed 8%.
And who can forget the 2007–2009 U.S. bear market, a “companion” of the 2008 financial crisis? From October 9, 2007, to March 9, 2009, domestic markets fell by more than 50%. During the same period, gold rose nearly 30%.
Buffett Avoids Gold – That Doesn’t Mean You Should
So, as you can see, Buffett is right that anything can happen to financial markets “tomorrow.” And as for how far markets can drop (as much as 50%), Buffett is dead-on about that, as well. The contraction of major markets by more than 50% during the 2008 financial crisis is an indisputable example of his notion.
In light of his admission about this, together with gold’s track record of appreciating during financial crises, I can’t understand why Buffet dogmatically avoids gold. But the good news is you don’t have to follow his lead.
If you recognize the value of including gold in your portfolio, call award-winning Augusta Precious Metals at 800-700-1008. You’ll speak with a knowledgeable customer success agent who’s ready to answer all of your questions about purchasing gold and silver. You’ll also have the chance to find out if you’re eligible to receive our exclusive informative guide for retirement savers who have more than 100,000 dollars in existing retirement accounts. The free guide includes information that Wall Street doesn’t want you to know but that could help you protect your savings. And don’t forget to ask about our live webinar: the Profit & Protect Web Conference, hosted by Devlyn Steele.
There’s so much to respect about Warren Buffett. But we’re going to have to “agree to disagree” on the subject of gold’s value to a portfolio. He acknowledges markets can be surprisingly volatile and unpredictable. I believe gold’s track record during that kind of volatility speaks for itself. If you agree, contact Augusta today.