Andrew Van Sickle editor@moneyweek.com
MoneyWeek has a lot of time for Warren Buffett, but he has always been wrong about two things. Firstly, his longstanding fondness for Cherry Coke is mystifying (in 2017 an Chinese advertising campaign for the revolting drink featured his face on the cans). When we consider also his reported dislike of alcohol, it is a miracle he has lived so long. Secondly, he doesn’t like gold.
In the late 1990s he complained that it “gets dug out of the ground… 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.” The long gold bull market that began in the early 2000s, and shows no sign of slowing down, appears not to have changed his mind.
Matching the S&P 500
Gold is hardly without utility: around a tenth of global production is used in industries ranging from medicine and electronics to defence. And the more people, whether watching from Mars or not, learn about the financial system and its history, the more they appreciate the need for an asset that acts as insurance for investors’ portfolios.
It is hitting new highs as I write, and AJ Bell points out that in dollar terms, the yellow metal has matched the S&P 500’s capital appreciation since 1971, when the gold standard fell apart, the era of fiat currencies arrived, and governments began to borrow and spend as much as they like. They are still doing so (see page 4) and much of the eye-watering burden will have to be refinanced at interest rates considerably higher than those prevalent in the 2008-2022 period.
The US is already spending more than $1trn a year servicing its debt, and is keen to reduce interest rates, but stubborn inflation won’t let it. The monthly fuss over the US inflation figures has obscured an interesting trend: the annual rate of American consumer-price inflation has been broadly stable for eight months.
It seems to be starting to bed in at just under 4%, almost double the central bank’s target. At 4%, remember, your money loses half its purchasing power in 18 years. So one key reason for the latest surge in gold (see page 5) is a fear of monetary debasement. (Bitcoin is also sometimes talked about as a safe haven and alternative currency, but its tendency to post massive falls in a weekend may gradually undermine that impression.) In this cycle, gold has no
