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When it comes to gold, Warren Buffett doesn’t know what he’s talking about, according to one of the metal’s most ardent European fans. Gold is likely to hit a record high of $2,000 (U.S.) an ounce over the next year, driven by fears over government deficits and worries that central banks will be forced into more money printing, according to Erste Group, an Austrian bank.
The bank believes the precious metal will eventually rise even further, reaching at least $2,300 an ounce, which would match its high from the early 1980s if inflation is taken into account. In a recent report to clients the institution says that given the instability in the global financial system, its price forecast “could be on the conservative side.”
Erste Group has been producing annual forecasts of gold prices since 2007, and has been bullish over the period – an accurate call, given gold’s surging fortunes over the past five years.
This year’s 120-page report includes such quirky measures as how many litres of beer can be purchased at Munich’s Oktoberfest each year with an ounce of gold. It also features a lengthy discussion on Mr. Buffett’s well-known antipathy toward gold, which the bank views as an irrational form of “aurophobia.”
The bank says that Mr. Buffett doesn’t understand that bullion is a form of money and therefore shouldn’t be compared to stocks as an investment. It maintains that the proper comparison is between gold and competing types of money.
Mr. Buffett “criticizes the low industrial use, the lack of intrinsic value, and questions the general reasonableness of buying gold. We believe that Buffett has made a fundamental error, having missed the connection between gold and money and is thus comparing apples and oranges.”
The bank says that Mr. Buffett’s negative view on gold would apply equally well to the U.S. dollar, which “has no intrinsic value, no industrial use, and does not pay any interest at this point in time either.”
To be sure, Erste Group’s Oktoberfest beer comparison indicates that gold is a little pricey now, at least compared to the long-term average of the yellow beverage in terms of the yellow metal.
Since 1950, an ounce of gold bought an average of 87 litres of beer at Munich’s outdoor gardens. Currently, it’s 136 litres.
For the rest of this article, please go to the Globe and Mail website: http://www.theglobeandmail.com/globe-investor/investment-ideas/the-case-for-a-new-gold-rush/article4421481/