It must be "Bash Gold" week on the CNBS network. Warren Buffet has been leading the charge by talking down the precious metal in a recent newsletter to Berkshire Hathaway shareholders and followed up Monday on CNBC's "Squawk Box" where he warned that despite the declining value of the dollar, running to gold is a "mistake."
Not to be outdone, Buffet’s partner in crime Charlie Munger recently declared "gold is a great thing to sew onto your garments if you're a Jewish family in Vienna in 1939 but civilized people don't buy gold – they invest in productive businesses."
And now, Bill Gates went on CNBS Monday to try and explain the great error in investing in the barbarous relic. It's like they're trotting out the billionaire boys club to scare people back into Berkshire and Microsoft stock.
As they should. Bill's Microsoft has been absolutely decimated vis-a-vis gold for 12 years straight and running.
Both Buffet and Gates concede that paper money will continue to be debased as long as central banks hold the legal monopoly to print it. What they won't mention is that such blatant fraud is conducted to finance government deficits and prop up a virtually zombified banking sector.
Gates in particular tries to tie his bumbling rant together by declaring gold has a kind of psychological value to it. That those who buy it are motivated by it because “people in the future will think it’s worth more than it’s worth today.” Gates goes on to point out that as more people flood to the gold market, the more the gold mining sector will develop which will subsequently increase the supply and put downward pressure on prices.
Congratulations Bill, you have stumbled onto some of the most basic lessons of economics.
First, since the value of all goods and services are determined solely by the purely subjective perceptions of utility amongst market participants, gold is no different from any other investment. Many perceive it is a viable currency alternative to the current state of affairs. Those who put their money in equities do so because they believe it will yield them a return. “Psychological” factors play just as much of a part in this thinking as they do in those who purchase precious metals.
Second, if an investor’s marginal profit is exceedingly high, this is a signal to other market participants that there is money to be made in whatever sector in paying out at such a rate. People move to where they can make a profit. They don’t sit idly by making negligible returns. Supplies increase, prices adjust, and so does the market.