In today’s Finshots, we tell you why Warren Buffett isn’t a believer in gold investments despite the yellow metal hitting all time highs.

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The Story

We’re back with another gold story. And why not? Gold prices have hit an all-time high, smashing records left and right. Yesterday, it touched a jaw dropping $3,145 per troy ounce (about 31.1 grams) in the US, while in India, it soared to ₹91,300 per 10 grams on the Multi Commodity Exchange (MCX).

But why is gold on fire?

Well, blame it on Trump’s tariff threats. Markets are panicking over what these tariffs could do to global trade, and fears of an impending trade war have everyone running to the safest asset in history ― gold.

See, gold isn’t like money that central banks can print endlessly. It’s a finite resource. To put things in perspective, so far, around 2.16 lakh tonnes or 80% of all economically extractable gold has already been mined. And just about 54,000 tonnes are left buried underground. And when something becomes scarce, it only gets more valuable. That’s why, in times of economic turmoil, everyone from governments and central banks to big investors and folks like you and me rushes to hoard gold.

But guess who doesn’t buy into this shiny obsession?

Warren Buffett!

Yup, the legendary investor has never been a fan of gold, and probably never will be, no matter how high its price climbs. Because gold simply doesn’t fit into his playbook.

You see, Buffett’s a value investor, someone who hunts for assets priced lower than their true worth, expecting the market to catch up and price them right eventually. But gold for him, is an unproductive asset. Unlike stocks, which generate profits and dividends, and have a company behind them that sells goods and services through some value creation, gold just… sits there. It doesn’t grow, innovate or pay you back in any way. Neither is it anything like its cousin silver, which at least, has industrial applications. It goes into your gadgets and even electric vehicle batteries. But gold has little utility beyond being shiny and desirable.

Buffett explained it beautifully in his 2011 letter to Berkshire Hathaway’s shareholders. He painted a simple picture:

Imagine a giant cube made of all the gold in the world. It would weigh about 170,000 metric tons and have a value of $9.6 trillion. Now, for that same amount of money, you could buy all the farmland in the US (400 million acres generating $200 billion annually), 16 ExxonMobils (then the most profitable company in the world), and still have a trillion dollars in cash left over. A century from now, that farmland would have produced massive amounts of crops, ExxonMobil would have paid trillions in dividends, and yet… the gold cube would remain unchanged, doing nothing. Sure, you can touch it, admire it, even hoard it, but it won’t make you money.

But then you could argue that gold is undervalued and never holds the same price over time. For instance, if we valued gold the old-school way, like when the US dollar was backed by it, its fair price today would be much higher. Sure, we don’t follow that system anymore, but if you just used it as a benchmark, you’d notice something interesting. The US Federal Reserve’s total M2 money supply stands at around $21.6 trillion. Think of M2 money supply as all the money that’s easily accessible in an economy but also includes some savings that aren’t immediately available for spending. Meanwhile, the US government holds approximately 261 million troy ounces of gold (the largest among central banks worldwide). If you do the math, gold’s fair price should be around $75,000 an ounce, suggesting that it’s undervalued by 95% at today’s price.

Sounds crazy, right?

But there’s a flaw here, which we’ve already told you about at the start. Unlike gold, money isn’t limited. Governments can print as much as they want. So, pegging gold’s value to money supply is like using a moving target.

And that begs the question: If gold doesn’t generate income and might not be undervalued, why does its price keep rising?

Well, the short answer is fear.

People invest in gold because they’re scared. Scared of inflation, recessions, wars and financial meltdowns. They don’t buy gold for what it does. They buy it hoping that someone else will be willing to pay more for it later. It’s eerily similar to the famous Tulip Mania of the 1600s. This was one of the first financial bubbles recorded in history where tulips became a status symbol, and demand skyrocketed, driving prices to absurd levels even as much as 10 times an average person’s annual salary! People kept investing in tulips, believing that the hype would never end. Until it did. Prices collapsed overnight and many were left in financial ruin.

Gold, of course, has endured through history, but the idea remains the same. It rises because people expect more uncertainty in the future than they have today. It acts as an asset of trust because people have believed in its value for centuries and continue to hope it will hold its value in the years to come. 

Also, let’s not forget that owning gold isn’t free. You need to pay for storage, insurance and security. Those extra costs eat into your returns over time.

And if you’re still not convinced you could look at its long term returns. If you had invested ₹1 lakh in gold in 1995, by 2024, it would be worth ₹16.5 lakhs. But if you had put that same ₹1 lakh into the BSE SENSEX, you’d have a sweet₹25 lakhs today! The same goes for the S&P 500, which has outpaced gold over time.

Okay, but then why do people still rush to gold?

Well, according to an interesting observation by Equitymaster, it’s all about ‘recency bias’. Basically, while stock market indices have outperformed gold over time, in the last year alone, gold has delivered a solid 29% return, which is three times what the SENSEX managed.

And that again neatly ties into Buffett’s point too. Gold investing is often driven by fear, not logic. Since the pandemic, both the fear-driven buying of gold and its value have surged. First in 2020, then after the Russia-Ukraine war in 2022, and now with fresh geopolitical tensions. And people focus on recent gains rather than long term performance. So it’s no surprise that it’s grabbing attention!

But does that mean that you should avoid gold completely just because Buffett does?

Not really. Because gold can be a useful hedge against inflation, just not the perfect one.

So yeah, even though Warren Buffett isn’t a fan of gold, adding a small chunk of gold to your portfolio isn’t really a bad idea. But going all in just because it looks shiny is probably not the best thing to do.

Until next time…

Correction: An earlier version of this story measured gold in ounces (28.35 grams). However, the standard unit for precious metals like gold and silver is always troy ounces (31.1 grams). We regret the error and have now corrected it. So, if you see “ounce” anywhere in the story, just know we mean troy ounce.

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