Breakout

Buffett Is Wrong, Gold Prices Will Soar as European Austerity Dies

Jeff Macke
Breakout

Warren Buffett is reiterated his stance against buying gold, after famously mocking the notion in his 2010 annual letter. He noted that the metal had no utility and, that being the case, no value as an investment.

Buffett wrote that an investor could buy all 400 million shares of U.S. cropland plus the equivalent of 16 Exxon Mobils (XOM) for the same price as the world's entire stock of gold. Buffett went on to say that in 100 years, the acreage would have produced an unimaginable bounty, the 16 Exxons would have produced trillions in cash, and the gold would "remain unchanged in size and would still be incapable of producing anything."

Anything except capital gains, according to Jared Dillian, author of the book Street Freak and the Dailydirtnap.com newsletter.

"Last time we talked, last September or October, you asked what I thought, and I was bullish," Dillian tells me in the attached clip. "Now it's $1,660, and I'm still bullish. I'm more bullish than ever."

The author says the political unrest in Europe makes gold a better play than ever. Of European pols in general, and Francios Hollande in particular, Dillian thinks, "These guys who are further to the left don't want anything to do with austerity at all. The answer is going to be growth."

In Central Banking terms "driving growth" is the same as "providing liquidity." The U.S. has Quantitative Easing; Europe has the LTRO. Either way it's "very similar to printing money." In other words, it's inflationary.

With the major Gold Miners ETF (GDX) sitting on 52-week lows and the Junior Gold Miners ETF (GDXJ) right there with it, Dillian bases his call on sentiment more than fundamentals. As a newsletter writer, he gets a ton of email regarding the miners, which characterizes the mood as something close to panic-stricken. A trader can either play such moods as capitulation or avoid the group as a collection of falling knives.

It may not be how the purest of gold enthusiasts would play it, but Dillian is betting in miners and believes it is going to lead to sharp recoveries.

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