Open Letter to Warren Buffett on Gold

Warren Buffett

Dear Mr. Buffett,

Let me start by saying that I am a great admirer of yours. What you and Charlie Munger have accomplished at Berkshire Hathaway is truly extraordinary.

Today though, I want to talk to you about a very specific four letter word – gold.

You’ve not been shy with your opinion about gold over the years. Your 2011 letter to shareholders seems to offer the best summary of your thoughts. Towards the end of this letter, pages 17-19, you place investments into three major categories;

  1. Currency denominated investments (USD money market funds, bonds, bank deposits etc.)
  2. Unproductive assets, purchased out of fear or a “herd” mentality
  3. Productive assets such as businesses, farms, or real estate – your favorite

You put gold into the second category. You said:

“Gold…has two significant shortcomings, being neither of much use nor procreative…”

“…if you own one ounce of gold for an eternity, you will still have one ounce at its end.”

After describing the entire world’s supply of gold (170,000 tonnes) as a giant gold cube, you say:

“The 170,000 tonnes of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.”

Many articles have been written to counter your arguments, but none of them addressed your main point—i.e. that if you own one ounce of gold today, you’ll still only own that same ounce tomorrow, next year, and every year thereafter.

I’m writing to tell you that’s no longer the case.

I work for a company called Monetary Metals and our mission is to Unlock the Productivity of Gold®.

By productivity, I mean the same thing as your third category of investments—owning an asset that produces something additional for the owner, regardless of the market price. We define investment as the deployment of capital to finance a productive enterprise. Buying gold by itself is just a speculation on its price. That doesn’t qualify. Therefore, a true gold investment is when gold capital is deployed productively for more gold capital in return. This is precisely what we offer in our Gold Fixed Income products.

This isn’t just a theory, it’s already happening and demand is growing. Right now our clients are earning gold interest at annual rates that compare favorably to dollar equivalents.

What you said was , “if you own one ounce of gold for an eternity, you will still have one ounce at its end”, was true for nearly a century. But no longer.

Monetary Metals is ushering in a new era of gold ownership and investment—a modern day working gold standard. We define that as when anyone who wants to, can earn A Yield on Gold, Paid in Gold®.

I want to end this letter with a question.

As a successful investor, you’re intimately familiar with the challenges that the dollar poses for those seeking to build wealth over a lifetime. Knowing you can now own gold productively, does this change your opinion of gold at all?

If not, I would love to hear why.

Dickson Buchanan Jr.

P.S. In case you’re wondering, we pay interest on silver too—a metal you’ve been known to favor a time or two in the past.

3 replies
  1. runeks says:

    Wait a minute. Either you own gold, and earn no yield, or you purchase a bond/stock etc. with gold that does earn a yield (in which case you’ve sold your gold). Gold doesn’t earn a yield, but a gold-denominated bond does.

    It’s completely true that a lump of gold doesn’t earn a yield until you let go of it (lend it out), and that’s perfectly fine. It’s essential that gold owners can refrain from lending out their gold, thus creating a floor for the rate of interest.

    • Dickson says:

      “It’s essential that gold owners can refrain from lending out their gold, thus creating a floor for the rate of interest.”

      That’s absolutely correct Runeks. And that’s a feature we offer in our Gold Fixed Income product. Any gold not deployed in a deal can be withdrawn on demand. No gold goes into a deal unless it earns the rate you want it to earn.

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