Tags: Buffett | wrong | bearish | gold

CNNMoney’s La Monica: Buffett’s Wrong to Be Bearish on Gold

By    |   Wednesday, 01 August 2012 08:18 AM

Legendary investor Warren Buffett has been an outspoken bear on gold over the years, but now isn’t the time to follow his advice, says Paul La Monica, a columnist at CNNMoney.

Buffett doesn’t like gold because, unlike companies, it doesn’t produce anything and can’t pay dividends.

But while gold has dropped 16 percent from its record high of $1,924 an ounce last year, it’s still up 3.2 percent year to date at $1,620 an ounce.

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Gold has outperformed Buffett’s favored asset – stocks – over the last 11 years.

Gold may receive a boost later this week if the Federal Reserve and European Central Bank (ECB) ease monetary policy further, as many expect.

Gold benefits from central bank easing, because that easing can lead to inflation. And many investors turn to gold as a hedge against rising prices.

“If gold goes higher in the short term, it will be because the Fed and ECB stepped on the gas,” Jeffrey Nichols, senior economic adviser to Rosland Capital, told La Monica.

Nichols sees a good chance for gold to reach a new record high later this year or next year, as monetary accommodation continues.

Others are bullish, too.

“The velocity of the money has not yet entered the system, but one has to buy gold, as it is a long-term play and will keep rising as you need insurance against future inflation,” Michael Cuggino, a portfolio manager at Permanent Portfolio Funds, tells Bloomberg.

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Wednesday, 01 August 2012 08:18 AM
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