Why Buffett Is STILL Wrong About Gold

The comments below are an edited and abridged synopsis of an article by Bert Dohmen

Warren Buffett says he doesn’t like gold as an investment, but millions of people have a different view. Gold is a store of value; that value is not eroded by central banks creating money artificially. In terms of paper currency, gold rises over the long term. In 1975, gold was $35. Now, gold has broken out above $1,800.

Why Buffett Is STILL Wrong About Gold | BullionBuzz
Macro view of a shiny golden bar. Fine gold ingot close up. Financial success, business investment and wealth concept. 3D illustration

In 2019/2020 alone, the Fed increased the money supply by over $4 trillion, lowering the purchasing power of each dollar by half. Eventually, if that money creation is not reversed, gold will rise in price to reflect the dilution of dollars.

In an October 2019 article about gold, Dohmen provided short- and long-term forecasts for gold. His long-term outlook was that gold would continue rising in accordance with a 30-year bull market cycle that began in 2001. This turned out to be correct.

Those who knew about the underlying bull market cycle and stayed in were rewarded. Gold rose roughly $240 in 2019, the largest annual rise since 2010. And in 2020, gold is the best-performing asset so far.

Despite all the attention on stocks, money has continued to flow into gold. Prices have surpassed the psychologically significant $1,800 level. A stronger resistance level is in the $1,900 area.

What’s driving the rallies? The Fed was injecting massive amounts of liquidity into equity markets by lowering interest rates, buying corporate debt, and establishing new types of loans, thus guaranteeing true junk. Meanwhile, massive stimulus packages for individuals are inflating personal incomes and, by extension, corporate revenues.

Gold has had no artificial support. In October, central banks globally were buying it in unprecedented amounts; now, that has stopped. Russia, one of the biggest buyers last year, halted its gold purchases, and others have liquidated the metal in favour of currency reserves, needed for more urgent problems brought on by economic contractions.

Recently, the Fed has been withdrawing stimulus. That’s an important reversal from the huge injections since late March. It could trigger a sharp correction in many assets, including gold and silver.

Dohmen’s next target is the previous all-time high, in the $1,900 to $1,930 zone. This may not be reached, or may be exceeded.

Leave a Reply

Your email address will not be published.