Tags: Schiff | Trust | Buffett | Gold

Peter Schiff: Don’t Trust Warren Buffett on Gold

Thursday, 08 Mar 2012 07:32 AM

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Warren Buffett has the media and government wrapped around his little finger, charges precious-metals dealer Peter Schiff. Trouble is, he shouldn’t be trusted by investors who understand what is coming next for gold, Schiff argues.

In his annual letter to investors in his holding company, Berkshire Hathaway, Buffett warned his shareholders against buying gold.

“What motivates most gold purchasers is their belief that the ranks of the fearful will grow,” Buffett wrote.

Editor's Note: Wall Street Whistleblower Warns of Meltdown, See His Uncensored Interview

“During the past decade that belief has proved correct," Buffett wrote. "Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As ‘bandwagon’ investors join any party, they create their own truth — for a while.”

Hogwash, says Schiff, CEO of Euro Pacific Precious Metals.

“I concede that Buffett is a talented investor and a great communicator. He clearly has had great success and has much to offer. But that shouldn't blind anyone to the fact that Buffett is not a trusted observer. He's a crony capitalist who bends the truth to serve his long-held ideological commitment to big government,” Schiff writes in a column for StreetInsider.

Buffett was a big buyer of bank stocks in the credit crisis, but only because he believed government would bail them out, Schiff argues. Then he went “behind the scenes” in government to ensure that would happen, Schiff writes.

“As a result, he profited at the expense of taxpayers at the very time when they were losing their savings in the markets. Meanwhile, many ‘in the know’ politicians bought Berkshire stock during the height of the crisis, making a profit from their votes, and giving them incentive to revere Buffett all the more,” Schiff alleges.

If Buffett were truly a capitalist, Schiff says, he would buy gold, but he can’t because of the investments he has already made.

“The adoption of an independent measure of value like gold presents two problems to Buffett. First, it would reduce the nominal returns of his dollar-based investing strategy. Second, it would restrict Washington's ability to goose the financial system in his favor,” Schiff argues.

Gold fell below its 200-day moving average on March 6 to $1,674 an ounce, a move that some investors see as a bearish sign and harbinger of more declines. The recent price high was $1,889.70 on Aug. 22, 2011.

The drop brought in buyers, however, pushing gold to $1,705 in spot markets. Traders blamed recent testimony by U.S. Federal Reserve Chairman Ben Bernanke, who failed to discuss further easing by the bank, known in the markets as QE3.

"Markets had really hoped for QE3, and that did create a plunge for gold, because all of a sudden traders and investors abandoned risky assets, we've seen the U.S. dollar strengthening and stock markets (easing)," Peter Fertig of Quantitative Commodity Research told CNBC.

Editor's Note: Wall Street Whistleblower Warns of Meltdown, See His Uncensored Interview

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