When it comes to the outlook for gold prices, Warren Buffett may be wise to consider the opinion of one of his own employees. While the “Oracle of Omaha” and one of the most successful investors to ever live has expressed a stubborn disdain for the yellow metal during its 12-year bull market, many other individuals have profited handsomely from gold’s ascent by properly assessing its role in the global financial system.
John Gilbert, chief investment officer at General Re-New England Asset Management (GR-NEAM) – a subsidiary of Berkshire Hathaway – argued yesterday that “There is growing evidence that the rising price of gold is a statement about the discouraging prospects for returns on productive investments.”
In a report published on GR-NEAM’s website, entitled The Barbarous Relic Expressions An Opinion, Gilbert discussed his bullish stance on the yellow metal in light of the dire prospects for economic growth around the world.
“Returns on productive assets are falling as 30 years of debt accumulation, and government distortion of economic behavior, such as in China, depress expected future returns as growth slows in many parts of the world,” Gilbert wrote.
He added that “As the expected returns on more productive assets, such as business investment, remain modest, gold is rising because investors are suspect at the prospects for other risky assets. Investors have, for the time being at least, not relinquished a role for gold as an insurance policy against financial misfortune. Like it or not, it remains a monetary asset.”
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Gilbert went on to say that “Businesses express caution by not making the investments necessary to improve productivity. There are exceptions, such as emerging countries with favorable demographics, and falling natural gas prices in the U.S. But it is not clear that those are enough to counter the forces depressing returns, nor is it clear that activist central banks can repeal gravity by encouraging investors to take risk anyway.”
In conclusion, he asserted that “There will be a tendency to higher gold prices until that changes, and a risk of correction in risky assets to lower prices and improve expected future returns. The barbarous relic has a long history, and its opinion is not encouraging.”
Gilbert’s piece can be read in its entirety at https://www.grneam.com/Site/news_pubs-industry.asp