Letter Re: Warren Buffett and the Hypothetical Cube of Gold

Last week, legendary investor Warren Buffett of Berkshire Hathaway was asked in an interview (cited in blogs and articles now all over the Internet) why he was not investing in gold. Here was his reply:  

“If you took all the gold in the world, it would form a cube 67 feet on a side, worth $7 trillion. For that same amount of money, you could own other assets with far greater productive power, including:   All the farmland in the US, about 1 billion acres, which is worth $2.5 trillion.   Seven Exxon Mobil’s (XOM), the largest capitalized company in the US.   You would still have $1 trillion in walking around money left over.”    

I’m not sure that I get his point. Apparently, he is making the case that, at current prices, gold is overabundant compared to other assets and, according to the laws of supply and demand, there should be no upside.   What struck me was in inverse corollary: If all the gold in the world is worth $7 Trillion, then all the gold in the world would only pay down half of the U.S. National Debt.   To me, this indicates an extreme shortage of gold. (In reality, an extreme overabundance of dollars, which even when held in your hand are simply promissory notes  — not to mention Euros, Pounds, Yen, and so forth).

Like you, I’m really more of a silver guy, myself. – E.C.B. in Illinois