Gold prices have surged over 65% year-to-date to nearly $4,350 (£3,237) per ounce, as investors and central banks pile into the precious metal amid sticky inflation, macroeconomic risks, trade wars, and stock market volatility. The uncertainty has boosted the safe-haven appeal of the precious metal, which has a universal demand, high exchangeability, and limited supply.
However, legendary investor and Berkshire Hathaway chair Warren Buffett has long voiced concerns about gold as a long-term investment. He explained his scepticism in a 2011 Berkshire Hathaway shareholder letter, describing the precious metal as ‘neither of much use nor procreative,’ adding that gold does not generate cash flow or create value over time.
The Oracle of Omaha also said in a 2011 interview that ‘gold is a way of going along on fear.’ He implied that gold prices depend on market sentiment, and demand rises when people are more fearful of the economic landscape. When they are bullish on the markets, demand for gold declines, leading to a drop in prices. Buffett is known to prefer assets that generate cash flow and compound over time.
However, Buffett made a U-turn on his stance on gold when Berkshire Hathaway disclosed in Q2 2020 that it held a $565 million (£420.5 million) stake in Barrick Gold (NYSE:B), one of the world’s largest gold mining companies. The stake in a gold mining company during the height of the COVID-19 pandemic was considered an industry-altering decision back then. By Q4 2020, Berkshire Hathaway had completely offloaded its stake in Barrick, making it a relatively short-lived trade for Buffett, who typically buys to hold forever.
In September, Morgan Stanley’s chief investment officer, Mike Wilson, said that investors can allocate 20% of their portfolios to gold for a resilient inflation hedge.
In the same month, Bridgewater Associates founder Ray Dalio pondered upon gold’s defensive role in any portfolio at the launch event for Abu Dhabi Finance Week. He explained that gold could be a way for investors to protect themselves from markets that are unhealthy because of debt. He said that investors might hedge that risk with a 10% to15% allocation to gold in their portfolio.
More recently, VanEck’s David Schlesser investors should allocate at least 5% of their portfolio to gold. He sees gold prices reaching $5,000 (£3,721) per ounce in 2026. The analysts said gold prices are rising in tandem with bitcoin. ‘Both are decentralised store of value assets not tied to any government,’ Schlesser added.
Overall, Buffett’s criticism of gold is founded on the nonproductive nature of the metal that does not generate income. He strictly believes that long-term wealth is built with assets that generate cash flow and compound in value over time. While gold price surges can be tempting for many to invest, and it could serve a hedging role against market volatility, the precious metal should not replace a value-oriented investment strategy.
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