Is gold a good investment? - 2015-03-02 & 2025-02-13

Is gold a good investment? Pa, like Warren Buffett, strongly disagrees. Buffett has eloquently explained why in his 2011 Chairman's Letter to Berkshire Hathaway (and even earlier, in his 1956 letter!), arguing that gold is unproductive. He illustrated this point beautifully by comparing Berkshire's share price to the price of gold. For the first few years, they were neck and neck. But fast forward nearly 50 years (to 2015-03-02), and Berkshire shares were worth a staggering US$221,180.00, while gold was a mere US$1,218.30 per ounce – a 181-fold difference! Ten years later (2025-02-13), the gap widened even further: Berkshire Class A shares hit US$711,133.60, while gold reached US$2,925.30 – a 243-fold difference! Berkshire clearly outperformed gold, and by a huge margin. The gold increase 9.15% compounding in the last 10 years and Berkshire is 12.39%

Pa's take? Gold isn't an investment because it doesn't generate recurring income. You just hold it, hoping the price goes up.

So, why does the Singaporean government allow the member to invest the CPF money in gold? From their perspective, gold is "hard money." They can't just print it like they can paper currency. It's a reserve, a hedge against the possibility of other governments (or even their own citizens) losing faith in paper money.

Think about it: money is easy to create. Governments can conjure up billions with a few keystrokes, adding numbers to a computer screen. But gold? That's finite. (Unless, of course, your country happens to have a gold mine.) And even then, the government might prefer the digital route – printing and distributing physical currency has costs.

Paper money relies on confidence. If that confidence evaporates, it becomes worthless – even less valuable than toilet paper, as Pa recalls hearing about the "banana notes" printed by the Japanese during wartime. They printed so much that the currency became practically useless.

Gold's value skyrockets during times of war or economic crisis, precisely because people lose faith in paper money, especially when governments are seen as irresponsible with their printing presses. In those situations, gold becomes a safe haven. But as a long-term investment in normal times? Pa and Buffett would say, think again.

Let's talk about gold. Its price has compounded at an impressive 9.15% annually over the last decade. Frankly, that's a better return than I've achieved with my own investments since 2012, which is 7.52%. If I were to dismiss gold as having no value, I'd practically be inviting ridicule. However, I adhere to the traditional investment philosophy: buying something solely for price appreciation isn't true investing. It's speculation.

I'm putting my investment skills and understanding to the test as Berkshire Hathaway is proven better than the gold. I'm documenting my thoughts here, a stake in the ground. This analysis will be reviewed in a decade, at which point I'll assess the relative performance of my portfolio versus gold.

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