Why Warren Buffett is Wrong About Gold

Warren Buffett once famously stated that gold doesn’t do anything but “look at you.”

What Buffett meant was that, unlike corporations, gold has no earnings, does not pay dividends, and does not grow its revenues. It is simply a physical asset. In this sense, its value is determined by circumstances (economic growth, inflation, etc.) rather than by the future value of cash flows.

I was thinking a lot about Buffett’s quote yesterday as I watched gold rocket to new all-time highs. For those who are not paying attention, gold is currently outperforming every major stock market index, as well as every legendary investor (including Buffett himself) this year.

It’s even outperforming Wall Street’s AI darlings like Nvidia (NVDA)!

What is going on?

What’s going on is that Buffett is actually wrong — gold does do something: it hedges against currency devaluation. And globally, central banks are in the process of turning their currencies into confetti. Almost every other day, some central bank announces a new round of easing / money printing.

Case in point, yesterday the People’s Bank of China (PBoC) launched a new round of liquidity, injecting 260 billion yuan into China’s financial system. On the news, gold jumped to new record highs.

The PBoC joins the Fed, the European Central Bank (ECB), the Bank of England (BoE), the Bank of Canada (BoC), the Reserve Bank of Australia, and the Swiss National Bank (SNB) in easing monetary policy.

The fact that gold is currently outperforming stocks indicates that this easing will be highly inflationary. Put another way, the financial system is telling us it is more worried about future inflation than it is excited about future growth.

This is a MAJOR development.

Central banks are supposed to balance the risks and benefits between prioritizing growth and inflation. Given what gold is doing relative to stocks, we are getting a clear signal that there will be a resurgence of inflation in the coming months.

This is THE THEME for investors who want to make big profits in the markets. Big money is made when you prepare for what’s coming, not when you focus on what’s already happening.