Warren Buffett’s Berkshire Hathaway recently surprised markets by announcing it had bought a stake in Barrick Gold. This is the same Warren Buffett who in 2011 proclaimed his distaste for gold, noting:
“If you own one ounce of gold for an eternity, you will still own one ounce at its end.” He preferred investing in “productive assets” such as stocks.
With gold at near-record prices, is now the time to buy some? Which Buffett should you believe? I recently collected 50 years of gold prices, S&P 500 returns (dividends included), and inflation (as measured by changes in the U.S. Consumer Price Index). Here are five facts and a chart: you decide.
Fact #1: U.S. stocks outperformed gold over the past 50 years. Since 1970, the U.S. stock market has averaged an annual return of just over 11 per cent, compared with an annual return of 8.4 per cent for gold (all as measured in U.S. dollars).
Adjusting for inflation, real annual returns to U.S. stocks have averaged 7.2 per cent, compared with 4.5 per cent for gold.