2005: Is gold a viable alternative to paper currencies?

WARREN BUFFETT: Let’s try number 13. I think, maybe, that’s in the other room and we’ll see whether we get a response and if not we’ll —

AUDIENCE MEMBER: Good morning, Mr. Buffett and Mr. Munger My name is Martin O’Leary (PH) and I’m from Austin, Texas.

Mr. Buffett, given your past essays concerning the U.S. dollar and foreign exchange forward contract holdings that you have, and many countries’ economic policies that have a tendency to debase their currencies, do you think that gold can be considered a viable investment alternative to paper currencies?

WARREN BUFFETT: Yeah, we’re not enthused about gold.

People, historically, have felt that was the first refuge from a currency that was going to be — decline in value.

But, you know, so is a barrel of oil. So is an acre of land. So is a piece of Coca-Cola. So is See’s Candy.

See’s candy — if the dollar goes down 50 percent, we will be selling See’s candy for double the present price. We’ll be getting the same real price for See’s candy.

People will work the same number of minutes or hours per week in order to buy a pound or two-pound box of the candy.

So we would much prefer a — some asset that is going to be useful whether the currency is worth what it is today, or 10 percent of what it is today, or whether people are using seashells in order to transact business.

Because people will go on eating and they’ll go on drinking and doing various things. And their preferences will translate, in real dollars, into more or less the same economics for us.

And we would not trade the ownership of those kind of assets for us for a hunk of yellow metal, which has very little real utility except for people who are looking to flee from the dollar and, in our view, really haven’t thought through the consequences of what fleeing would — where they should flee.

Charlie?

CHARLIE MUNGER: Yeah. If you have the opportunities of Berkshire Hathaway, averaged out, gold is a dumb investment.

WARREN BUFFETT: My dad [Howard G. Buffett] was a huge gold enthusiast. So I sat around the dinner table — my two sisters are here, too. They will testify to it.

We sat around listening to the virtues of gold, and that was in, we’ll say, 1940. And gold, at that time, was $35 an ounce. And we would’ve had some storage and insurance costs.

And, you know, here it is, 65 years later. World wars, nuclear bombs, all kinds of things. And the compound rate from $35 to a little over $400, less those expenses, is not something that causes me to salivate.