by Gary Alexander

August 25, 2020

Next Sunday the “Sage of Omaha” turns 90. Born August 30, 1930 in Omaha, Warren Buffett was only two when new President Franklin D. Roosevelt closed U.S. banks on March 4, 1933 for up to 10 days on his first day in office, saying, “We have nothing to fear but fear [of getting your own money out of your own bank] itself.” A month later, the President forced a confiscation of most privately held gold at $20.67 per ounce. Near Warren’s third birthday, on August 28, 1933, by executive order 6260, FDR prohibited any hoarding (also known as saving?) of gold and placed limits on any exports of gold. He then revalued gold at $35 per ounce in January 1934, robbing Americans of a 69% increase in their gold savings in a time of general deflation and lost stock market profits. For the next 41 years, it was illegal, under threat of up to 10 years in jail, for Americans to own this inert metal (AU-79) in the Land of the Free.

There is no question that Warren Buffett is one of the most successful investors of the 20th century – a premier “value” investor, following the guidelines of Graham & Dodd’s “Security Analysis” Bible, first written in 1934, later given a foreword by Buffett, but Buffett seldom had a kind word to say about gold.

Warren Buffett Quote Image

At Harvard, in 1998 – when gold traded at $290 per ounce – Buffett said: “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.”

Over a decade later, on March 9, 2009 – the very day that a record-long 11-year bull market in stocks began – Buffett was asked on CNBC (on behalf of a middle school investment club in Dublin, Ohio) where he thought gold would be in five years. His answer presciently favored stocks over gold:

“I have no views as to where it will be, but the one thing I can tell you is it won’t do anything between now and then except look at you. Whereas, you know, Coca-Cola will be making money, and I think Wells Fargo will be making a lot of money and … and it’s lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage …”

Even though most stocks have beaten gold since 2009 due to the birth of a stock bull market that very day, gold has also done fine, doubling from $900 to over $1,900, while Wells Fargo has fallen recently.

Miracle of miracles, we read last week from Buffett’s 13F SEC form (required of all private investment firms to be filed within 45 days after the end of each quarter) that Buffett sold Wells Fargo stock and bought a huge position in a Canadian gold mining firm last quarter – the opposite of his 2009 advice.

In the second quarter, Buffett’s fund bought nearly 21 million shares of Barrick Gold, valued at $564 million, so this nearly-90-year-old sage is all of a sudden in favor of digging holes in the ground to find gold, refining it, then burying it again, and then have somebody else watch over it while it “does nothing.”

Navellier & Associates does not own Coca-Cola, Barrick Gold or Wells Fargo in managed accounts.  Gary Alexander does not own Coca-Cola, Barrick Gold or Wells Fargo in a personal account.

It Was Ever Thus – Gold vs. Paper Money in Banks

That’s also a pretty good description of paper money – it’s buried in banks, doing nothing, while somebody watches over it – except for the fact that “The Fed Can’t Print Gold.” That’s the title of a BankofAmerica report issued last May 26, in which they forecast $3,000 gold by the end of 2021.

With several 2020 multi-trillion-dollar relief packages and the Federal Reserve adding $3 trillion to its balance sheet for bank lending, many observers forecast higher gold prices, since we can’t mine much more gold from existing holes in the earth, and it’s so easy to print another trillion in paper receipts.

Fed's Balance Sheet Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Due to this profligate printing press addiction in Washington DC, the U.S. Dollar Index declined by 10% from March 20 to August 18, creating much of the formula for gold’s recent rise. Gold mining shares can then leverage this rise in gold’s price. If their cost of mining an ounce of gold averages $1,000 per ounce, all costs included, then a rise from $1,500 to $2,000 in gold bullion doubles their profit margin.

That makes gold a “value” pick in the currency market, and gold stocks a value pick when gold is rising.

Navellier & Associates is one of those rare investment advisory services that believes in both gold and stocks in a balanced portfolio, with stocks making up the lion’s share and gold serving as a portfolio balancer. The proper understanding of gold is that it fills the role of a cash or currency (or even Treasury bond) substitute, not as a competitor to stocks. Gold has beaten every currency on earth over the last century. The dollar is now worth a penny in gold terms since its $20.67 price tag when Buffett was born.

Fiat Currencies versus Gold Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

It took almost 90 years for the Sage of Omaha to realize the value of gold, but “better late than never.”

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
The Dollar is About to Rebound Some

Sector Spotlight by Jason Bodner
Watch What Big Money Does Secretly, Not Just Openly

View Full Archive
Read Past Issues Here

About The Author

Gary Alexander
SENIOR EDITOR

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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