Gold: Buffett versus Einhorn

By Gareth Brown in our one-man Vienna office

I promise I won’t be writing about the shiny yellow metal often. Let’s just say I’ve made my views in the past and I disagree with my boss.

I’m only posting because I recently came across a comment from David Einhorn (whose Greenlight Capital holds gold) that made me laugh. It’s a thinly-veiled response to comments by Warren Buffett about the uselessness of gold and includes similarly quirky statistics on the uselessness of cash:

“The debate around currencies, cash, and cash equivalents continues. Over the last few years, we have come to doubt whether cash will serve as a good store of value. If you wrapped up all the $100 bills in circulation, it would form a cube about 74 feet per side. If you stacked the money seven feet high, you could store it in a warehouse roughly the size of a football field. The value of all that cash would be about a trillion dollars. In a hundred years, that money will have produced nothing. In a thousand years, it is likely that the cash will either be worthless or worth very little. It will not pay you interest or dividends and it won’t grow earnings, though you could burn it for heat. You’d have to pay someone to guard it. You could fondle the money. Alternatively, you could take every U.S. note in circulation, lay them end to end, and cover the entire 116 square miles of Omaha, Nebraska. Of course, if you managed to assemble all that money into your own private stash, the Federal Reserve could simply order more to be printed for the rest of us.”

Ultimately, I think the key difference is that Buffett and Steve Johnson view the argument as one of gold versus long-term assets like shares and property, whereas Einhorn and myself view gold as an alternative to cash and other liquid, short term assets. In that sense, there is no argument—just a few different lenses for thinking about why you do or don’t own the barbarous relic.

That’s my last post on gold for 2013.