[TheAdamAndChe]

I've always liked Warren Buffett's explanation on why investing in gold is pretty silly[1]. Basically, owning gold as an investment is purely speculation, because earning a return requires greater demand in the future. It doesn't have the potential to provide dividends or grow exponentially like ownership in a business does. Gold earns nothing for you over time.

Instead of investing in gold, why not invest in a foreign market that's at least partially insulated from the US?

[1] http://www.minyanville.com/trading-and-investing/commodities...

[snappyTertle]

Warren Buffet is one of the world's greatest investor and what he says about gold makes sense. However, there is more than one way to invest. Buffet has made fortunes taking a fundamentalist approach and values companies. There are also other successful investors that try to predict macro trends.

I also suggested foreign assets that are not holding onto a lot of US debt.

[Boothroid]

Part of the value of gold comes from the many industrial applications of the stuff.

[logfromblammo]

Such as the Indian dowry jewelry industry.

All other industrial uses are completely swamped by the creation of human ornamentation. But the thing about jewelry is that the gold in it is usually very easily recycled. So it is not as strongly consumed as the gold used in electronics, which requires a greater effort to recover, if it isn't simply landfilled a milligram at a time.

That jewelry use creates a soft reserve, such that it is usually not available to the market, but if the gold price rises high enough, it can start to liquidate, likely starting with the ugliest necklaces.

So it would seem that the majority of the value of gold comes from the human desire to possess a tangible, portable symbol of one's wealth. It cannot be taken from you, unless someone finds you and pries it out of your fingers. Paper assets are more amenable to remote interference. Your ownership of a company via stocks may be diluted. Your fiat accounts may be devalued via monetary inflation or seized with the cooperation of your bank. Your bonds may suffer default. The title to your land may be transferred against your will. But that gold necklace is yours, as long as you're the only one that knows where it is.

As such, failing to invest in gold is ignoring the risk of a major crash in the modern centrally-banked, fractional-reserved, and fiat-moneyed economy, which is subject to boom-bust cycles. Gold is the asset of choice for those that think that government bonds from too-big-to-fail countries are not actually the default lowest-risk investment. But even then, the gold bugs are undercut by the people who buy condos in underground shelters that anticipate the complete collapse of human civilization, along with barrels filled with small arms ammunition. Buffett's #3, #5, and #6--gold is going long on fear--is definitely true.

But I don't think the other quotes are 100% accurate. They have the odor of the Labor Theory of Value about them. Things don't have value because they do stuff, but because people want them. Gold has value because some people want gold, not because it delivers billions of bottles of Coke, or ferries passengers across continents, or summons a driver for you on command. People want gold for different reasons, and some reasons are more predictable than others, but none of those reasons are required to be rational or useful. And that's why the Buffett analysis of gold fails, in my opinion.

[prewett]

What's wrong with the Labor Theory of Value? (Never heard of it before, so I don't know)

The way I interpret Buffett's view on gold is that if I have a choice between buying a hunk of yellow metal that just sits there, or buying the same amount of shares of a (high quality) company like KO where people labor day and night trying to make more money for the shareholders, the choice is pretty obviously the latter. Of course, those people may be ineffective in their labors, or worse, stupid decisions by managers might make the company less valuable, but if I have some reasonable confidence in them, gold doesn't sound very attractive. In the case of KO, it has been steadily increasing dividends for something like 50 years, so something must be going right. That seems like pragmatism, to me, not Labor Theory of Value, though.

[logfromblammo]

You can read about it here: https://en.wikipedia.org/wiki/Labor_theory_of_value

I don't believe it is applicable to most of the economies on this planet.

If I may analogize, Buffett is saying that a trophy spouse that does nothing but look good and impress your friends (gold) is a less worthwhile investment than one that goes away all day to bring home $80 and a distinct grease-trap odor (stocks). A Van Gogh painting that hangs on your wall, slowly oxidizing its pigments (gold) is a less worthy investment than a plastic fish on a wood-veneer plaque that can sing four different songs whenever you walk past it (stocks). A square mile out in the desert with awesome sunsets and no light pollution at night (gold) is better than a square mile that grows corn, wheat, alfalfa, and soy when dosed with sufficient amounts of chemicals (stocks).

People value things other than money and rate of return, and other purely rational criteria. Sometimes people buy things to enjoy them as they are, rather than anticipate what they could be. The lump of gold will never be anything greater or lesser than what it was when you bought it, and some people like that quality. The 1 troy ounce .9167 gold coin will always be worth at least 1 troy ounce of .9167 gold, no matter what anyone else in the world does. If you bury 10 kg of .9999 gold and dig it up 100 years later, it will still be worth 10 kg of .9999 gold. You might be able to trade your gold for differently sized baskets of goods and services in different years, and the size of future baskets will always be smaller than what you could have obtained if you had wisely invested in companies, but you will always be able to get something, even if the world has effectively ended.