If you molded all the gold in the world into a cube, Buffett claims, it would be about 68 cubic feet or 21 m³. This is a little shorter but considerably wider than a tennis court. As Buffett observes, it would fit comfortably in the middle of a baseball infield. The value of all that gold at today's prices would be about $10 trillion.
As for its merit as an investment, Buffett observes the following:
- The cube of gold will produce nothing in the next hundred years;
- The cube of gold will not pay you interest or dividends, and it won't grow earnings;
- You can fondle the cube, but it won't respond.
If you had $10 trillion sitting around, Buffett proclaims, instead of buying the cube of gold, you could buy all the cropland in America and 16 Exxon-Mobils and you would still have $1 trillion of pocket money. Over the next hundred years, your cropland and Exxon-Mobils would produce trillions of dollars of dividends, and you would still have them at the end of the century, at which point you could probably sell them for vastly more than the $9 trillion you bought them for. So, which investment would you choose?
For gold to be the better investment, Buffett rightly claims you need to persuade someone else that the cube of gold would be an great investment at your asking price. Because that's the only way you can ever make money in gold - if there's someone out there who is willing to buy it from you for more than you paid for it. This is true speculation! Meanwhile, your cropland and Exxon-Mobils would likely keep throwing off tons of cash even if the market for them completely dried up. Thus, Buffett is convinced which investment will return more over the next century. His investment choice is obvious.
Food for thought...
China’s foreign currency reserves are enough to buy every central bank’s official gold supply - two times over! Meanwhile, the Chinese central bank continues to buy gold rather than dollars.
Author: Chris Davies
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