Why Warren Buffett’s Pouncing on Precious Metals (Again)
The comments below are an edited and abridged synopsis of an article by Jesse Felder
Almost two years ago, Felder wrote “Why Warren Buffett Would Be Buying Precious Metals Again (If He Could).” In that article, he referenced a quote from Buffett’s 1997 Letter to Berkshire Hathaway Shareholders:
“Last year, we purchased 111.2 million ounces. Marked to market, that position produced a pre-tax gain of $97.4 million for us in 1997. In a way, this is a return to the past for me: Thirty years ago, I bought silver because I anticipated its demonetization by the U.S. Government.”
Last week, Berkshire Hathaway revealed a stake in Barrick Gold, and Felder believes this investment is again related to demonetization.
However, in 1967, demonetization meant the breaking of the dollar’s official link to gold. Today, it means the dollar’s value relative to gold will deteriorate, and possibly to a significant degree, just not all at once as in 1971.
The demonetization of the dollar today is less of a shock and more of a slow and steady burn, which only makes it more insidious.
A year ago, Charlie Munger, Warren’s partner at Berkshire, said, “I am so afraid of a democracy getting the idea that you can just print money to solve all problems and eventually I know that will fail…All the politicians in Europe and America have learned to print money…Who knows when money printing runs out of control? At the end, if you print too much you end up with something like Venezuela.”
Since then, the affinity for money printing has only grown, and the Fed’s balance sheet has nearly doubled as a result.
It’s easy to see why recent actions by Congress and the Fed to generate the biggest fiscal deficit-to-GDP in history and monetize the entire amount would inspire the greatest investor of modern times to put on an inflation hedge.
Berkshire is too big to buy precious metals directly, but an equity investment that may be a much more efficient inflation hedge than your average stock is right up their alley.