-- Posted 7 May, 2006 | | Source: SilverSeek.com
Today, I received word from about 15 of my subscribers that Warren Buffet's Berkshire Hathaway has sold their pile of nearly 130 million ounces silver. Five different news articles tell a similar story, that Warren admits he sold the silver.
This is very bullish for silver, because it explains why silver's rise took longer than we thought (Warren was selling), and it also means that there is much less silver above ground than we thought. Buffett's hoard of 130 million ounces no longer exists! Clearly, Warren made a mistake, and he seems to admit it when he says that he sold silver too soon. I always suspected that Warren did not understand gold or silver too well.
Buffett emphasized the 'non-productive"(?) aspect of gold in 1998 at Harvard: "It 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."
- http://en.wikipedia.org/wiki/Warren_Buffett
I answered Buffett's conundrum on gold, why men keep it vaults, in my article, "Refuting Myths about Gold", in 2003.
He must have never read it. It took me about 10 seconds to think up the answer to refute Buffett's myth, numbered 28 in the article (but it took me about 2 years to compile and write the full article):
28. It does not make sense to dig up gold from the ground, and bury it again deep in the ground in a vault:
Yes, it does. Gold is kept in the vault because gold is valuable and rare, and thus, it needs to be protected from theft. You wouldn't want your property to be stolen, would you? Gold ownership also prevents theft from inflation, and from banking collapses during depressions, which happen under paper money systems.
I really feel sorry for Mr. Buffett. He complains he has $40 billion and does not know what to do with it, or how to protect it from inflation. He recently tried buying foreign currency with it, but that does not work either, when all currencies are overvalued frauds. Too bad Mr. Buffett. Buffett's confusion must be due to God himself, or perhaps senility. As the Bible says, "God is not mocked", but perhaps Gold is not to be mocked, either.
Before, I had given Mr. Buffet the benefit of the doubt. I had thought that his line about the uselessness of Gold was clever dis-information, as foolish traders sometimes try to talk down an investment while accumulating. But it appears he is just ignorant about one of the most fundamental aspects about the nature of Gold, after all.
The fundamentals of silver have nothing to do with supply and demand after all. The fundamental nature of silver is that it is different from paper, and paper is no substitute. Gold's use is that it keeps men honest! Gold provides a method for peaceful and non-fraudulent beneficial trade among men.
What is so special about gold? I'll tell you once again, (from silverstockreport.com):
Gold is money because it is liquid because it is easily tradable, with a narrow spread between the prices to buy and sell (about 1%). Also, gold is easily transportable, because it has a high value for its weight. This makes gold an excellent medium of exchange.
Gold is money because it is divisible, you can divide it into coins, or re-melt it into bars, without destroying it. Also, gold is fungible, where each unit of .999 fine gold (99.9% pure) is similar enough to another unit so as to be easily interchangeable. Gold is also nearly impossible to counterfeit, and genuine gold is easily recognizable. When measured by weight, gold is easily countable. These properties make gold an excellent unit of account.
Gold is money because it is a great store of value. Gold is not subject to decay, rot, or rust. Gold has an intrinsic value in itself, because it is rare, highly coveted the world over, and is a luxury item.
Silver has all the same characteristics, except silver is heavier by value, (cheaper per ounce). (Silver is actually less dense, and lighter than gold per unit volume, which prevents counterfeiting coins by plating silver coins with gold). Silver is also more rare than gold, in above-ground, refined, deliverable form. Silver is more useful to industry than is gold, as silver is used in more applications than any other item except, perhaps, oil.
Buffett's problem is a pitfall I've worried that my subscribers would fall into. The danger is selling too soon, due to not knowing why you bought precious metal in the first place. For example, what if you sell gold as gold rises to $3000 per ounce, on its way to $30,000 per ounce? Well, between $300 and $3000, you'd make ten times your money. And then, between $3000 and $30,000, you'd give back all your gains, and be no better off. This is why I've personally risked my reputation, by writing "outlandish" articles about how and why gold can rise to infinity dollar per ounce! (As paper money dies.)
Future Gold & Silver Prices --December 21, 2005
http://www.silverstockreport.com/email/Future_Gold_and_Silver_Prices.html
Why no talk of $32,567/oz ? - 02 January 2003
http://www.silverstockreport.com/essays/Why_no_talk_of_32567_oz_-.html
During the past 7 years, I've closely watched many items that are bullish for gold and silver; most notably, who is covering them, and how good is the coverage. Finally, the New York Times covers gold in a somewhat positive way. This is no time to call a top, just because they are covering gold. (Many old gold bugs believe you should sell gold if the NY Times gives it coverage.) After all, the Times is still at the bottom of the learning curve, in my opinion, and still rather skeptical of the facts about gold, and the nature of gold, somewhat like Mr. Buffett. But the interesting thing about the Times is that many newspapers follow stories that the Times covers, and so, we may see the beginning of greater coverage about gold in the U.S. national press, and we may see gold prices rise substantially as a result.
This article was sent to me in email by several sources: http://www.nytimes.com/2006/05/07/business/yourmoney/07gold.html?_r=1&oref=
Gold is up from "hot money", yes. But Gold IS money! Paper money is the "hot money" by definition--paper money is the hot potato that people have to dump if they want to protect their wealth. But gold is not up because gold is a fad. Gold is up because it's gold's time, because gold is timeless, and because the fad of paper money is ending. Once again, such basic misunderstandings mean we have a long, long way to go.
Sincerely,
Jason Hommel
-- Posted 7 May, 2006 | |
