The hard metal with a soft touch

Buy gold, if you like. Wear it, exchange it for fancier and trendier jewellery often, but don’t equate this spending with investments

Warren Buffet, one of the most successful investors of our time, has often called gold a non-productive asset. It has no utility, he argues, and has famously said, ”(Gold) gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

Well, we are not sure about what people (aliens, perhaps) from Mars think about gold, but the yellow metal has had a special place in most Indian and Chinese households for years. The two countries account for 57 per cent of the world’s total gold jewellery consumption and, in case of India, gold (unwrought) is the second biggest item on the import list of the country, right after crude. That’s how popular gold is.

So, when Buffet-led Berkshire Hathaway announced investing in a Canadian gold mining company last year in August, many Indian and Chinese investors took note and might have felt vindicated. Berskhire Hathaway’s investment was certainly not the same as buying gold but investing in a gold mine sent out signals that may be gold merits more stake in one’s portfolio than just mere 5 or 10 per cent as suggested by financial planners and wealth advisors.

The Oracle of Omaha after all sets the trends in value investing. But, but, unsurprisingly Buffet recently offloaded all the stocks of the gold mining firm (in February this year), reinforcing his belief that gold is not worth investing money in.

“Buffet doesn’t understand gold. He doesn’t have to wear it,” quipped one of my aunts in a family WhatsApp group when I suggested gold is not an investment. “Your uncle has invested in real estate all his life, and I have invested in gold. Stocks are very risky. When markets rally, there is always a talk of bubbles. I don’t understand it,” she said. “Gold has appreciated in value. At the time of your wedding, just 10 years ago, it was around $1,142 per ounce and now it is around $1,800. My jewellery

is worth more than what I had bought it for, and I get to wear it and look good. Why is it not a good investment?”

Well, if you want to buy a car or a house, or go on a long, fancy, holiday, you need cash. You will not rush to sell off your gold to fund for these expenditures, I wanted to say, but I didn’t. There is no asset class that prompts more emotional reactions than gold, at least in Indian households, so I left it at that, agreeing to disagree.

The longstanding understanding about gold is, it is a good diversifier of risk. It has a reputation of being a safe haven during times of economic certainty, and in a lot of Indian households where financial goals and planning are largely limited to daughter’s wedding and children’s education, gold has played a seminal role in acting as the asset of choice. Regular purchase of gold (mostly jewellery, less of bullion) over years has saved families big, fat expenses at the time of weddings, and allowed prudent daughters to make a down payment for their first house by selling the gold they received (I know of two who did this).

Buy gold, if you like. Wear it, exchange it for fancier and trendier jewellery often, but don’t equate this spending with investments.

Gold as bullion, and better still, as gold certificates can be good investments, but as financial planners suggest, limiting the exposure to 5 to 10 per cent of the total investments will always help. The remaining money should be invested in a range of assets and not dumped in one asset class. Gold has the sheen, but equities and other assets will provide you with the wherewithal to achieve your financial goals and maintain a healthy financial life.

suneeti@khaleejtimes.com