Many people, especially those who don’t put much stock in history, often classify gold only as a “precious metal,” where it sits neatly with platinum, silver, and palladium. But gold has always been so much more than that. It has been a symbol of wealth for millennia and has centuries of seniority over Fiat money. And unlike the currency, it actually does have intrinsic value.
Despite having a special place in history, gold doesn’t have many actual uses. Yes, it’s used extensively as jewelry in many parts of the world, but that has more to do with gold being valuable than it is more beautiful than other wearable ornaments.
It’s also a conductor and used in some applications, but there are more feasible investments. And that’s one of the reasons why Buffett doesn’t like gold.
Buffett and gold
Warren Buffett’s opinion about gold can be partially summed up in just one of his statements about the metal: “It doesn’t do anything but sit there and look at you.” It’s coherent with one of Buffett’s core investment principals that people should invest in things that are useful and serve a purpose. Things that actually contribute to society and humanity in general.
And even though gold looks important, and it even is important, it’s not “practically” unique. In comparison, silver, which can easily be considered the rut of the precious metal family, is far more useful. Pure silver is the best electrical conductor, and it’s significantly lighter than copper. It’s used extensively in electronics and also has many uses in medicine. Buffett owns about US$1 billion worth of silver, even though its pricing is very volatile.
Gold’s value is mostly because of humanity’s historical reliance on the metal as the de facto basis of wealth. But when it comes to practicality, gold is far outshone even by metals as dull-looking as iron. That’s what Buffett has against gold.
Investment in precious metals
If you want to mimic Buffett and invest in silver, or silver stock, one oversold company you may want to look into is Wheaton Precious Metals (TSX:WPM)(NYSE:WPM). The $23.3 billion precious metal giant is one of the world’s largest precious metal streaming companies. The company has a stake in gold, silver, and palladium, and streaming agreements with 20 operating mines.
Most of Wheaton’s revenues are tied to gold, but it also produces a sizeable amount of silver every year. By this year’s end, the company is expected to produce somewhere between 22 to 23.5 million silver ounces.
Wheaton’s stock was almost stagnant between 2017 and 2019, but the stock really took off last year and grew almost 174% since Jan 2019. This puts its three-year compound annual growth rate (CAGR) at 44.8%. That’s powerful enough to convert $10,000 into half a million in just 11 years, though that kind of growth is unprecedented and rarely sustainable.
While silver actually has more practical uses than gold, it’s pricing is very inconsistent. So if you invest in the metal itself (not a silver company), your portfolio might become more volatile than you might ideally like it to be.
A good mix would be a company like Wheaton that has a good asset spread, and consequently, more stability.