Warren Buffett has been receiving his share of grief recently for saying that gold does not constitute a sound investment. What will happen to the price of gold over the next year I am not sure ( no one is really ) but I do agree with Uncle Warren.
Consider the following:
Buffett is by nature a value investor. He buys shares when the share price is falling. Of course, the price of gold has quadrupled over the last few years. Once the world economies stabilise the price of gold will fall.
In essence gold is a commodity product. Buffett generally does not buy commodity products.
Gold gives no cash flow. Once you buy a bar of gold it just sits there and doesn’t bring in any cash flow. If you buy a dividend paying share/stock it also just sits there but it gives you a cash flow via the dividend.
Since no one knows where the gold price will be next year or in 5 years from now the investment is essentially a speculative one. If you have a business which is increasing its operations year on year then chances are that in a few years revenue, profits and cash flow will all be higher despite what the share price is doing at the time.
Having stated that I agree with Buffett I must admit to holding a very small stake in Ovoca Gold ( OVG ) which is basically a stock for gold bulls. OVG is possibly the cheapest stock on the market but this is possibly due that the company is now controlled by the Russians.
Feel free to share your thoughts in the comments section below or in the forums section above.
Happy Investing !!