"Gold 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." - Warren Buffett
Commodities do not innovate; they are not ideas and the only way they increase their value is either by becoming scarce (supply) or becoming popular/more useful (demand). The reason equities, historically, are the best asset class is because companies have to adapt to their environment; they are forced to improve. Gold will never change. Google (GOOG) may be around in 50 years time, and I have no idea what it will be doing. Gold will also be around, but it won't be doing anything.
"If you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes" - Warren Buffett
Are we unjustified in replacing 'a stock' with gold? I'm not arguing the possibility that gold has far to run, it may, but why bet on it?
Gold's long term average is between $700-$800/oz. As I write this it's at $1369/oz (CAD).
In this article, HSBC fund manager Charles Morris says, "I absolutely believe it's heading into a bubble, but that's why you buy it...a bubble is good." Legendary investor George Soros agrees and has put considerable money where his mouth is. Their investment thesis: it's going up regardless, might as well hop on board. It's not a thesis, and it's not investing, it's speculating.
A friend of mine said to me recently, "gold just keeps going up eh?" I didn't know how to respond. He then asked, "you think it'll keep going?" Again, I didn't know how to respond. My friend has no investment training, knowledge, and usually has very limited interest in the markets. If he is talking about gold, maybe it's a sign we are talking too much.
Buying gold takes faith, and I have greater faith in the wisdom of Warren Buffett.
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