The Oracle spoke and so it would be. Gold prices tumbled and the Oracle is proven divine as ever. As is my wont, I periodically check the financial channel throughout my day to catch the major headlines in order to have something to discuss at the water cooler. And, of course, something to discuss with all of you.
I'm sure you all saw or heard multiple recent quotes from Warren Buffett regarding gold and it's worthlessness. I mean how could you miss it? For two days Buffett buffeted the airwaves with insult after insult of gold and those who own it. My goodness. Could it be more obvious? Someone had an agenda.
It's hard to figure though. What the heck was he talking about? Over the last 10 years Buffett's Berkshire Hathaway has returned less than 6% annually while gold has rocked the markets with 18% annual returns - even figuring at today's low price of $1539 an ounce. Compounding those numbers really makes one take notice of the disparity in performance between Berkshire stock and gold. Berkshire is up 70% in 10 years and gold is up over 400%. I'm sorry I don't get it. I bought some gold 10 years ago and I didn't buy Berkshire. Forgive me. I'm trying to regret it but I just can't.
That said, the Oracle does seem all-knowing as gold prices have fallen $100 an ounce as of this writing. Let's try to put this in perspective. In a recent article by Mark Lundeen, Mark reminds us that since 1969, gold bull market corrections of 30%, and more, have been routine. That means, in order for this latest move in gold to be considered something other than routine, the gold price would have to fall below $1300 an ounce.
Frankly, with as much of a beating as gold has taken of late, I'm surprised at its resilience. Every sentiment has been turned against gold. The attack on gold has been relentless. It's as though someone is trying to beat every last weak hand out of the market to free up some supply. But, that would mean there is someone out there buying as fast as the weak hands can sell. Who could that be?
Two other articles I read today may shed some light on the answer to that question. Frank Holmes wrote:
Emerging market central banks continued their gold buying spree in March. UBS Investment Research says that Mexico bought 16.8 tons, Russia bought 15.6 tons and Turkey added 11.5 tons. Additional small purchases were made by Tajikistan, Kazakhstan and Belarus. We wrote a few months ago that central banks have begun accumulating gold reserves since the Federal Reserve cut interest rates in 2007, and HSBC Global Research expects this buying trend to continue for another five years.
Then from a zerohedge article we learn that, Soros Fund Management nearly quadrupled its investment in (GLD) to 319,550 shares. What do you think would happen to the gold price if the financial news headlines, touted these facts for 7 or 8 days in a row?
There are other reports that China continues to stealthily amass as much gold as we silly Americans will sell. Is it any wonder? Over and over again we learn the lesson that paper money is growing more and more worthless. One minute the Yen is collapsing, then the dollar, then the Euro, then the pound and on and on. At the moment it's the dollar that seems to be the strongest. Hence the lower gold prices. But under pressure of $16 trillion of debt and rising, how long can the dollar hold up?
Make no mistake - Gold will never be worth zero! And right now it appears to me, the small players are planning on gold to bust and the big players are planning on gold to bust out. What do you think?