For most people who are familiar with Warren Buffett and his work, they are well aware that he is a true gold bear. Investors might think that he doesn’t like precious metals whatsoever, but what might come as a surprise to many though, is that Buffett has invested in silver, roughly $1 billion to be exact.
As disclosed in a Berkshire letter to shareholders, thanks to the investment in silver Buffett had wrote that the company had seen a pre-tax gain of more than 90 million. Overall, the gains were roughly $97.4 million in profit that had been produced. Buffett isn’t against precious metals altogether; his view on gold and silver stem from his basic value investing principles.
As far as gold goes, Buffett has made it clear that he doesn’t see any value in it, gold doesn’t have much usefulness in his eyes. One of his notable investing principles is that the individual should only invest in things that can be considered useful, something that serves a purpose, and provide an everyday need that people have. But gold? As Buffett said, all it does is sit on the shelf and look at you, it has no use to it.
Silver’s Incredible Value in Everyday Life
Silver is a different story though; it has countless uses across medical and industrial industries. Silver has antimicrobial properties, non-toxic qualities, can be used for water purification, is regularly used in electronics, and more. It isn’t just for jewelry, silver is used in many more applications, and can be found in things like solar energy, cameras, cellphones, and computers.
For that reason, silver meets Buffett’s conditions of having a tangible, recognizable value. Silver contributes to a countless number of products today in the market and would be very difficult to replace or find a substitute material that can be used. That gives silver it’s huge advantage.
Today, the only industrial commodity used more than silver is oil. Silver is vital in more 30,000 applications across 10,000 industries. From creating smartphones and medical supplies, to being used for solar energy purposes, computers, and much more. As well, the global demand for silver is quickly outpacing the mining and current supply that is available. Just the same, the value of the US dollar will continue to depreciate.
Gold loses to silver in terms of its requirement of usefulness in Buffett’s eyes. Gold might have a few industrial applications, but it cannot compare to the versatility of silver and what it can be used for. As Buffett has previously declared, gold might make “pretty jewelry” but there are no large practical uses for, and because there is no inherent value to it. In the end, Buffett has concluded that gold is not a good financial asset, but he doesn’t think the same about silver.
So why did Warren Buffett make such a large purchase of silver? It’s likely because he believed it was a good time to buy, the price was low enough to attract him to it. Buffett took his position in silver seriously and that’s clear by the amount that he had invested.
Would Buffett Buy Silver Again Today?
Silver is at a very cheap price today, and so yes, Buffett could buy again. Although the price per ounce for silver today is a little more than Buffett paid when he had bought in previously, it is still considered to be even cheaper now, with the gold to silver ratio above 86 as I’m writing this.
If you understand the gold to silver ratio, you’ll recognize how to take the simple gold to silver ratio and use it to forecast the future of gold and silver prices. When the ratio exceeds 80, that is when the opportunities are clearly available. Click here to read more about the gold to silver ratio.
The Metal That Shines for Buffett is Silver, Not Gold
For silver, the fundamentals look much the same, if not better, than they did when Buffett bought. He might not be buying any silver at the moment, but it’s clear that silver fits precisely into the Warren Buffett way of value investing.
For those who understand the simple dynamics of supply and demand it’s easy to see why silver is the preferred choice. As Buffett puts it, “If you own one ounce of gold for an eternity, you will still own one ounce at its end. On the other hand, money invested in the stock market could grow exponentially.”
The analogy Buffett used is like choosing between two geese… If you had to pick one, would you want the goose that just sits there or the goose that lays the eggs?
What Buffett doesn’t know is there’s now a goose that lays silver eggs… Yes, you can now own silver and earn a monthly income from it!
President and CEO of Sprott US Holdings Inc. and an expert of natural resources securities investments, Rick Rule, has some great insights in the video below on why Warren Buffett doesn’t “get” gold, but the average investor should think twice about why precious metals are imperative now.
Update 10/2020: Warren Buffett Loaded Up on Barrick Gold
Buffett just bought 20.9 million share investment in Barrick Gold Corp. A bet worth around $560 million. Buffett unloaded many of its bank stock holdings; buying Barrick Gold is a radical change, and the importance cannot be expressed enough.
He sees that global central banks have absolutely lost control; they’re printing trillions and destroying fiat money. Buffett has always been disapproving of gold, but he’s not dumb, he sees where the payoff will come from going forward. Institutional investors will follow, therefore we’ll see higher gold/silver and mining stock prices.
With the global coronavirus panic sending the economy into a plunge, investors are quickly turning to precious metals as a safe haven. Gold has lingered above $1,900 per ounce since late July, and according to some analysts could reach as high as $5,000 to $10,000 per ounce over the next handful of years. Silver has consistently outperformed gold, rising by 50% since the beginning of the year.
Investors worldwide firmly follow Warren Buffett’s investing positions to pattern their approach to mirror his success. He seems to have changed his thinking on precious metals, likely believing the U.S. might need several more months or years to recover from the pandemic repercussions.