I closed my previous article, “Gold Gets Set To Triumph,” with a promise to soon reveal my guess as to the identity of the mystery individual who took delivery of a huge amount of gold – possibly as much as 2,000 metric tons, valued at close to $200 billion. If my guess turns out to be true, in whole or in part, its significance would speak for itself. But even if my guess is wrong, the mere fact that it seemed credible says a lot about gold’s current status and future potential.
I didn’t come up with the name on my own. Full credit goes to Maneco64, a daily YouTube blog out of London run by a former trader, Mario, along with occasional guests. I don’t remember whether it was Mario himself or a frequent guest, Clyde, who originally posited that the only private individual able to buy such a huge stash of gold would be Warren Buffett, or more precisely, Berkshire Hathaway.
At first I thought it must be a joke, but no, they were serious. And I consider Mario and his guests as among the most credible folks you’ll find on YouTube. They seem motivated by a desire to inform viewers, with no ax to grind. Overall, they are soft-spoken, well-read, and as far as I can tell, not doing the videos for monetary gain.
The reason I initially thought they might be joking is that Buffett has long been seen as someone who eschews gold. He is known for calling gold a “barbarous relic” and for unfavorably comparing owning gold to buying shares in companies with long-term double-digit growth records and prospects. He has pointed out that all the world’s gold would fit into a relatively small space, looking beautiful but just sitting there doing nothing, hardly a match for having a major share in many of the world’s critical drivers.
The scorn for gold expressed by an investment icon like Buffett no doubt influenced many to believe that gold was not a great investment, and the yellow metal, until perhaps very recently, was long ignored by major investors. A few years ago, I calculated that Blackrock, the world’s largest money manager, had considerably less than 1% of its portfolios invested in gold.
Gold vs. the dollar
Buffett, of course, was correct in saying that in and of itself, gold doesn’t drive progress or contribute to your health or well-being the way something produced by a corporation might. You can’t eat it, drink it, use it to plow land or build a factory. Gold has few industrial uses, and other than for some medical uses for nano gold, the industrial uses that gold does have can be performed nearly as well by substitute metals.
That, however, is beside the point – as anyone with Buffett’s outsized intellect and incredible investment acumen clearly would know. Gold is a monetary metal, and the correct comparison isn’t gold vs. the stock market but gold vs. other currencies. As I pointed out in my previous blog, gold now competes head-on with the dollar, a trend that gained traction in 2019 when gold was anointed a Tier 1 asset, the only asset other than the dollar to be considered as such.
So, was Buffett dissembling in his proclaimed scorn for gold, and by extension, other monetary metals? Besides the sheer improbability that he really believed in his fierce arguments against gold, there’s other evidence as well to suggest that he was. As Mario’s frequent guest Clyde pointed out, in the late 1990s, Buffett was the world’s largest holder of silver. At the time, this created quite a stir, which Buffett tamped down by noting that his silver holdings, although significant, were still just a small part of Berkshire’s overall holdings. For all I know, he might still hold silver, along with that possible large stake in gold. Keep in mind that he wouldn’t necessarily need to show gold on his balance sheet – he probably could find a way of leasing it for dollar-based money. I’m no expert in these accounting intricacies, but someone like the sui generis Buffett could get away with a lot. That’s especially true after he noted in a recent shareholder letter that he stood ready to help the U.S. when the inevitable meltdown arrives. Without Buffett’s help in 2008, Goldman Sachs today would have RIP attached to its name.
As to why Buffett has been so cagey and bad-mouthed gold even while accumulating huge amounts of silver, one plausible explanation is that he was aware that if he gave his public imprimatur to the metal(s), it would push them up too much too fast, to the detriment of the dollar and corporate America.
Realize that gold is priced in dollars, which means that when gold rises by a certain percentage, the dollar depreciates by a related percentage. The fact that gold began the century trading at around $260, and since then has risen more than 10-fold, means that if at the start of the 21st century you had divided your money between gold and the dollar, you’d have multiplied your current buying power by over fivefold. Go back further, and the differences grow even greater: If you started in the early 1920s, the dollar today, relative to gold, would be worth considerably less a penny.
A sign of trouble for the market
Buffett today holds a record-shattering amount of more than $300 billion in cash, that is to say, in some combination of dollars and possibly gold or silver. That should be seen as one more salient sign of trouble for the economy and market. Keep in mind that Buffett is uniquely positioned to understand what is going on. Berkshire’s vast holdings include a broad array of industries, letting Buffett look deeper into the inner workings of the economy than any other person or entity, including the Fed.
One example can be seen in his 2023 letter to shareholders, in which he noted major problems the U.S. was having with expanding its electric grid. His own energy company, along with others, had been waiting more than 15 years to begin the process of adding major capacity to the Western portion of the grid. They still didn’t have a firm date for when they could start, not to mention a target date for completion.
As I recently pointed out in my article “The Risks to the Market Lurking in AI”, our inadequate electric grid is an impenetrable barrier to creating anywhere near the level of electricity that will be needed to justify the massive capital expenditures companies are pouring into AI. Despite that, those companies, even after their recent fall, still command sky-high valuations in the stock market. Justifying those massive capital expenditures is becoming even harder as China accelerates the pace at which it is introducing far less expensive, top-performing AI products, making our entire AI model and industry even more problematic than a short while ago.
Buffett’s father, gold, and freedom
Before closing, I want to return to the topic of Buffett and gold with a few words about Buffett’s father, Howard Buffett, who, it turns out, was an ardent believer in gold and the need to make it the underpinning of the economic order. (Many thanks to Clyde for pointing this out.) During the Depression, Howard Buffett started a brokerage firm, which, evidence that the apple does not fall far from the tree, became very successful. It led to his serving four terms as a U.S. Congressman from Nebraska. A man of unshakeable rectitude, his belief in gold can be seen in a document he published on May 6, 1948 in The Commercial and Financial Chronicle. Following are some excerpts:
“Is there a connection between Human Freedom and A Gold Redeemable Money? At first glance it would seem that money belongs to the world of economics and human freedom to the political sphere.”
After a long discussion that included plenty of history and various pessimistic forecasts (which turned out to be unerringly correct), he concluded:
“…if human liberty is to survive in America, we must win the battle to restore honest money. There is no more important challenge facing us than this issue – the restoration of your freedom to secure gold in exchange for the fruits of your labors.”
Buffett’s linking freedom to gold may sound familiar if you’ve followed my writings for a while. I’ve argued there is a deep, indeed spiritual, connection between gold and freedom. I am referring to Thomas Jefferson’s notion of freedom, which is freedom of the mind. For Jefferson along with philosophers like Kant and Wittgenstein, that freedom was critical for human progress and fundamental to humanity.
For now, I’ll conclude with something I wrote four years ago and which I think is more apt than ever:
“It feels to me like humanity is being tested and badly failing. The case for gold and, indeed, virtually all commodities has probably never been more compelling. Indeed, these gains are ‘wired in.’ We are on the verge of creating a catastrophe on a grand scale unless we come to our senses. A new monetary system, which I feel is likely, is by far our best chance of avoiding a catastrophe that could range from worldwide poverty to the end of human civilization. While the U.S. hates gold because of the threat it poses to the dollar, we have to cooperate with our putative enemies even if that means accepting a new monetary system in which gold play a major part.”
The well-known fable The Emperor’s New Clothes was published in 1837. Hans Christian Andersen was the author. Not well known, is that Andersen’s version was preceded by many others. Earlier versions with very similar storylines go back to at least the 11th century. I stress the provenance of the story because it illustrates a timeless human trait to often forsake the truth for what we want to believe or find convenient to believe. The culprit in the Anderson version was a self-deluded and arrogant emperor, who because of his position was able to delude all his subjects. The story ends happily enough with a young child, not part of the masses, shouting out the truth. In today’s world by fooling ourselves about resource scarcities and the infallibility of science instead of addressing a variety of existential threats, we are creating perhaps the greatest threat to ever face human civilization.
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