The idea was really to digest what I'd read and say it in my own words, so this is just for my own studying.
First, Buffett:
I never thought about swapping my stocks for gold. I'd rather bet on excellent businesses and trust that their intrinsic value will grow steadily. These businesses are run by excellent managers, selling products people love now and will still love in the future. Compared with digging some metal out of the ground in South Africa, shipping it, insuring it, and then putting it in a vault at Fort Knox, people would much rather spend the wages they earned from hard work on See's peanut candy, Coca-Cola, or something like that.
My father was keen on the gold standard, but I never got excited about gold. I've never really owned gold, but I grew up in a family that worshipped it. I already gave it a chance — I just never understood what gold's intrinsic value is supposed to be. You know we sell gold pieces at Borsheims. But I would never sell stocks to buy gold. The idea of exchanging a productive asset for a non-productive asset is very foreign to me.
Buffett has also talked about gold in past letters to shareholders:
Besides cash-like assets, there's another class of assets that also aren't suitable to hold — assets that produce no cash inflow of their own, where you just hope someone else will buy them later at a higher price, like gold, art, antiques, and so on. Buffett calls them unproductive assets, as opposed to productive assets that can generate cash flow themselves.
Buffett uses gold to explain the difference. He said the world's gold stock is about 170,000 tons; if you melted it down and recast it, you could make a cube 21 meters on a side. People dug this cube out of the earth somewhere, refined it, melted it, then dug a hole and buried it again, and posted a bunch of people around it to guard it — it will never produce anything. People buy it only hoping that in the future more people will be willing to pay a higher price for it.
Gold produces no cash flow; you just hope someone else will buy it later at a higher price. It's a non-productive asset.
Here's Chen Jiahe's take.
Gold produces no value. A good stock can keep producing profits, and a cheap price lets us get those profits cheaply. Gold doesn't work that way — it doesn't grow extra gold just because you stored it well.
Good assets produce more assets every year; they inch forward day after day, and the compound return slowly gets larger. Gold's "growth equals zero" property, historically speaking, also makes it a bad investment. Same view as Buffett.
Gold can't really be "traded" in the value-investor sense. When we hold stocks, we enjoy the growth of the fundamentals and we can also keep trading to increase those fundamentals. The moment we find another stock with a better price-to-value, we can make a trade — and the fundamentals happily go up again. Over time, the fundamental growth of a stock portfolio can far outrun the fundamental growth of the stocks themselves. Same story for some other assets, like real estate and collectibles. Gold is different: all gold is the same. Gold is so simple that nobody is dumb enough to misprice it, so gold holders can hardly get fundamental growth from trading. And that kind of growth is a weapon value investors really rely on.
Gold is useless as a hedge against disaster. A lot of people buy gold because "maybe I'll need it when catastrophe hits." But if a society has fallen apart enough that you need gold, then food (canned goods), weapons, and medicine bought today at the same price are absolutely worth more than gold.
I even told Sasa before that during the pandemic I wanted to buy some gold. Looks like that idea was wrong. Awesome — I get to throw away another mistaken idea of mine!
Tang Erseng's answer is even more direct: buying gold is really buying a sense of inner safety, buying some emotional value.
Gold being chemically stable is not a reason for it to be precious. Gold being scarce is not a reason either. Gold having a consensus is not a reason either.
(But then I think: gold has all three properties at once — could that be a reason it's precious? Same question for crypto? I don't get it; I'm still too much of an amateur!
Buying gold is buying emotional value. Treat it as forced savings!
References:
Investment chat: Buffett on gold