Warren Buffett’s Gold blind spot

The Oracle of Omaha, Warren Buffett, recently announced he will be stepping down as CEO of Berkshire Hathaway. He built a reputation as one of the sharpest minds in investing.

Buffett’s folksy wisdom and knack for picking winners made him a household name. But when it comes to gold, Buffett maintains a stubborn bias against investing and has missed an absolutely huge move over the past 25 years.

Just before a generational bull market began in 2001, Buffett delivered a famous quip during a 1998 speech at Harvard, summing up his disdain:

"[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."

At the time, it was a reasonable perspective. Gold had been floundering for nearly 20 years since the last bull market ended in 1980.

It is not reasonable today.

Buffett has turned more bearish on stocks given the sky-high valuations and a mixed economic outlook. He has also shared strong concerns about the U.S. dollar.

Buffett has even been vocal about dumping dollars in favor of other fiat currencies such as the Japanese yen. Yet he has shown no interest in gold.

That’s odd. Gold has already enjoyed an extraordinary run over the past 25 years, driven by many of the same concerns Buffett has now.

The Fed went berserk with bailouts, zero interest rates, and massive money creation. Federal debt has literally gone parabolic, and Congress still shows no inclination to rein that in. Japan and other developed nations appear just as irresponsible. Gold has performed even better relative to the yen.

The whole world is mired in an inflationary spiral. Despite that, Buffett has yet to acknowledge the utility of gold.

Gold’s quiet triumph over the S&P 500

Gold’s results ought to be hard to miss or ignore.

Since 2000, gold has delivered a compounded annual growth rate (CAGR) of roughly 10.67%, climbing from around $280 per ounce to over $3300 by May 2025.

Compare that to the S&P 500, which, including dividends, has posted a CAGR of about 6.5% over the same period. In raw terms, gold has surged over 1000%, while the S&P 500, even with reinvested dividends, has gained around 400%.

Think about that. The “useless” metal has more than doubled the returns of US stocks. Importantly, the metal did better during turbulent times – the dot-com bust, the 2008 financial crisis, and the COVID market panic.

The stimulus-addicted equity markets look like a bubble, with record PE valuations. Gold, on the other hand, has proven its mettle as a safe haven. In 2008 alone, while the S&P 500 cratered 38%, gold gained over 4%.

It’s not just about price appreciation. Gold’s low correlation with stocks – recently at its lowest in a decade – makes it a powerful diversifier. When markets tank, gold often holds or climbs, cushioning portfolios.

Gold has worked great as an investment, an inflation hedge, and as a safe haven for 25 years. That is a ton of utility.

Gold vs. Berkshire hathaway

Gold hasn’t just fared well versus the broad S&P 500 index. It also stacks up against Buffett's own Berkshire Hathaway...

Since 1998, gold and Berkshire’s Class A shares have been neck-and-neck, each up roughly 500-550% through early 2025. Some periods tell an even starker story: from 2000 to 2020, gold climbed 532%, while Berkshire gained 322%.

That’s quite a feat for gold. Unlike Berkshire, the performance didn’t require Buffett’s genius along with teams of analysts handpicking stocks.

Buffett might have saved himself some trouble. He could have simply acknowledged that markets had been polluted by never-ending central bank intervention and unrestrained deficits, then made the single decision to buy gold and watch it appreciate.

Buffett’s cash hoard and Yen gambit: A risky bet

Berkshire’s cash pile has ballooned to over $300 billion, as he’s been selling stocks like Apple and Bank of America. He is clearly uneasy about the market and looking to park a lot of cash.

He has also expressed real concerns about the US dollar. He’s even dipping his toes into the Japanese yen.

That is a bold move given the yen is tied to an economy with a shrinking population, massive government debt (over 250% of GDP), and near-zero interest rates. If anything, the yen might be in even more trouble than the dollar.

Give it up already and buy some Gold

This isn’t 1965 America when Buffett took control at Berkshire Hathaway. It also isn’t 1980.

Times have changed, and Buffett acknowledges the need to change strategies. Based on recent public commentary, it seems Oracle has finally come close to understanding the utility of gold. It is clear he is nervous about holding overvalued stocks, and he understands the dark forces plaguing the dollar.

Too bad he is looking to stash some of the Berkshire cash hoard in the yen. Goldbugs could offer a better alternative, if only he would listen.

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