In his latest letter to investors of Berkshire Hathaway, the investment firm’s chairman Warren Buffett seemingly warned that the price of gold was heading for a correction, arguing that bubbles “inevitably pop.”
“As ‘bandwagon’ investors join any party, they create their own truth – for a while,” the famed “Oracle of Omaha” warned. “Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices.”
He continued: “In these bubbles, an army of originally skeptical investors succumbed to the ‘proof’ delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: ‘What the wise man does in the beginning, the fool does in the end.’”
Buffett said that gold has proved mainly attractive to the “fearful.”
“What motivates most gold purchasers is their belief that the ranks of the fearful will grow,” he wrote. “During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis.”
Buffett’s remarks predate a rocky week for the yellow metal, which suffered a huge decline on March 1.
Buffett owns four jewelry companies: Ben Bridge Jewelers, Borsheim’s, Helzberg Diamonds, and Richline. He recently announced he would be selling jewelry again behind the Borsheim’s counter during the Berkshire Hathaway annual investor’s meeting.