Gold has long been seen as a safe haven asset, especially in times of economic uncertainty. With its intrinsic value and limited supply, gold is considered a hedge against inflation and market volatility. As legendary investor Warren Buffett said, “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” Here we summarize key insights on investing in gold from famous investors and economic experts.
Gold as an inflation hedge
Gold has historically been an effective hedge against inflation, as its price tends to rise when the purchasing power of fiat currencies falls. As billionaire investor Ray Dalio noted, “Gold is a physical asset that has maintained its purchasing power over long periods of time…So to me, gold does a good job of preserving purchasing power.” During periods of high inflation, gold has proven to be one of the best performing assets.
Gold as a portfolio diversifier
Adding gold to an investment portfolio can help reduce overall risk and volatility. Legendary investor Harry Browne advocated a permanent portfolio with 25% splits between cash, stocks, long-term government bonds, and gold. As Browne explained, “The Permanent Portfolio’s goal is to protect and increase your money in both good and bad economic times. By balancing investment categories whose returns aren’t highly correlated, it aims to achieve relatively consistent returns with reduced volatility.” Gold provides non-correlated returns that stabilize portfolio performance.
Gold as a crisis hedge
Gold acts as insurance during times of systemic crisis or geopolitical tensions when other assets often decline sharply. Billionaire investor Paul Tudor Jones remarked, “I have never been a gold bug…But when the world appears to be falling apart at the seams, we all feel the need to have an anchor to windward: for me, that is gold.” In a crisis, gold historically holds its value or rises while paper assets fall, providing vital protection for wealth.
Gold as a long-term store of value
Unlike paper money which can be printed without limit, gold maintains its purchasing power over the long run. Billionaire investor Stanley Druckenmiller stated, “While Bitcoin has some attractive properties and while I own Bitcoin, I like gold better. Gold has stood the test of time; Bitcoin is unproven over long periods of time.” With limited supply and rising demand, gold has proven to be a reliable long-term means to preserve wealth.
In summary, famous investors highlight gold’s key roles as an inflation hedge, portfolio diversifier, crisis hedge, and long-term store of value. While gold may lack utility compared to financial assets, its physical properties and history of maintaining purchasing power make it a core holding for many investors seeking safety and stability.