Investing in Gold

Yesterday I spotted the following on YouTube "Charlie Munger of Berkshire Hathaway thinks you are a jerk for owning gold" which is a video repost against Charlie's statement. You can look at the video here.

I don't think you are a jerk, if you hold gold, but I don't think I would hold gold myself. Warren Buffett said this about investing in gold. ‘You could take all the gold that’s ever been mined, and it would fill a cube 67 feet in each direction. For what that’s worth at current gold prices, you could buy all — not some — all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?’

It is quite an interesting way of looking at things. My take on things is that gold is a way of storing value but not a way of growing value. It's value depends on people valuing it, people have valued it throughout history and it seems unlikely that this value will disappear. It differs 180 degrees from a company or enterprise that, when working properly, generates value. A good company will grow its intrinsic value and/or return to you the (part) owner a return (dividend). Gold will never give you a dividend.

The value of gold changes as its the demand for it changes. In times of high inflation or uncertainty it generally appreciates in value. At the moment we are in times of inflation and uncertainty. I also suspect that we are seeing an increased demand for gold from India and from China - people have new wealth and gold is a way of "capturing" that wealth.

One of the things that LibertyandEconomics (the author of the video) points out is that the purchasing power of gold has not fundamentally changed since roman times. This is an intelligent observation and highlights one of the remarkable properties of gold. However give me the choice of holding gold from Roman times until today or investing it I would rater invest it. Why? well imagine of you got a managed a 1% growth a year for the 2000 years from roman times to now - your one gold piece would have compounded into 439,000,000 or so pieces. On the other hand, as LibertyandEconomics you could have retained the value (or so) across the centuries.

One of the more interesting gold plays I came across was my father's. He had what he referred to as "a few shares" in a minor gold mine that was barely profitable. His take was in times of trouble gold becomes valuable, the barely profitable mine becomes very profitable. This was his hedge against uncertainty.