“Who is Warren Buffett? He’s ‘Yoda’ of the financial world. He is a man brilliantly skilled at making profits with considerable expertise in the U.S. economy and its corporations”.

Gold is, as he says, a dormant item pulled out of the ground and stored in vaults thereafter. It is not for ‘just making profits because it is an entirely different animal to corporations.

The big difference is that Buffett has been making money for around 70 years, whereas gold has been preserving wealth for around 5000 years. Buffett is mortal and coming to the end of his life, whereas gold is not.

Mr Buffett’s ability to make money is dependent on the continuation of a growing U.S. economy. More importantly it depends on his mortal skills as an investor. Gold is immortal.

Gold will survive if there is no U.S. economy. Gold has no investment skills, but has done very well in growing its price 42 times in as many years. Not bad for a totally inanimate item.

Gold for investors would have done far better if it had been bought in 1970 then sold before Volcker came to office at $850 an ounce, then repurchased in 2005 at $300 an ounce. Its return would have been nearly 120 times since the sixties if you had done that.

The world has known that gold will always preserve value over time, but hindsight is needed to know Buffett would do so well. By far the majority of investment managers have come nowhere near to the results Buffett has, nor are we likely to see that again. With Buffett, it is a case of “if only we had known!”

In gold’s case, the very arrogant 42 year experiment with government-promise backed paper excluding gold became the basis on which Buffett’s fortune was made. Right now, that system is undergoing strains that are sapping confidence in it. If the U.S. loses dollar hegemony the value of the dollar will decline heavily. Warren Buffett’s fortune may rise in weaker dollar terms, but if the U.S. experiences a loss of wealth and power to Asia more than it is at the moment and the U.S. economy sinks into stagflation, the real value of his fortune may have to be measured in gold? In other words, his fortune rests on the mortality of the U.S. dollar.

Meanwhile, the Fed continues to hold the world’s largest gold reserves at 8,133 tonnes –4,742 tonnes more than Germany, which holds 3,391.3 tonnes of gold and considers it an important reserve asset (to fund imports if the dollar becomes unacceptable).

Even now Mr Ben Bernanke holds the view that gold is not money. So why hold gold?.

We quote the saying, “Gold is not bought by people to make money, but by people who have money.” In that saying lies the appeal of gold. That’s why around 20,000 tonnes of gold are owned by Indians, and China is buying as much as they can afford at a rising pace. Emerging nations’ central banks are buying persistently for the same reason the U.S. continues to hold gold.

Gold is an insurance against nation’s governments and monetary systems. It is not bought for profit but for financial security. Hence, it has never been in competition with brilliant investment manager’s performance.

It has enabled investors in gold to retain their wealth through two World Wars and the destruction of their currencies on two other separate occasions. Fortunes made in those currencies during those times evaporated, despite the brilliance of their makers.

Of course Warren Buffett will not invest in gold because he’s a skilled operator and will continue to do well as long as he is able to manage investments in the system he knows so well. His brilliance remains in the perishable system we have now, leaving his wealth just as perishable. But he remains as mortal as the Jedi Knights were.

The skill in handling gold is to buy it at a low price ahead of a change of system. We believe the changes in the next five+ years will be fundamental and gold an asset that will increase its value during those transitions, no matter what level of instability lies ahead. We believe its value in dollar terms will outperform the performance of the last forty years and become a pivotal part of the future monetary system.

The real skill will be in continuing to own it during the days ahead and keeping it out of your government’s hands!

Hold your gold in such a way that governments and banks can’t seize it!

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SPOT GOLD PRICES slipped back below $1470 per ounce Thursday morning in London, drifting as world stock markets failed to follow Wall Street higher, where equities yesterday hit new all-time highs.

Silver held above $24.00 per ounce, just shy of last week’s finish, as commodities slipped overall.

A rise in Sterling after the Bank of England held its monetary policy unchanged drove gold prices down to £942 per ounce for UK investors. 

Government bond prices meantime rose everywhere except Australia and New Zealand, where strong new jobs data saw both currencies jump together with interest rates.

Spain today raised €4.5 billion ($6.5bn) in new debt at sharply lower interest rates from its last bond auction in April.

Neighboring Portugal has “already been able to totally finance our needs for this year” the finance minister said earlier this week, adding that Lisbon is now aiming to start pre-financing its 2014 needs and plan an exit from the €78bn bail-out it received from the European Union and IMF in 2011.

“The downtrend in [gold’s Relative Strength Index] is bearish,” says the latest technical comment from bullion bank Scotia Mocatta, “as it indicates that gold is becoming overbought at progressively lower levels, and becoming oversold at progressively lower levels.”

Even so, “Gold still has some room to move higher before making its next leg down,” Scotia’s note adds.

In terms of private-investor demand, “The pace of buying has cooled,” says another broker, pointing to “the frenzied pace” following the 30-year record price crash of mid-April.

“We suspect that those sitting on the fence and waiting for cheaper prices may yet have another shot at getting back in.”

Amongst the exchange-traded trust funds favored by money managers buying gold, the giant SPDR Gold Trust shed another 6 tonnes on Wednesday, taking the quantity of bullion held to back its shares to the lowest level since March 2009 at 1051 tonnes.

“Indian physical demand is strong,” says James Steel at London market-maker HSBC, “and the combined response by consumers and retail investors to the plunge in prices since mid-April is absorbing a portion of the liquidation in the gold-exchange traded funds.”

“No end in sight for precious metals appetite across the globe,” agrees Swiss refining and finance group MKS, “especially out of China and India” – the world’s No. 2 and No.1 consumer markets respectively.

“The question is who will win the battle between the unprecedented physical demand, and the unrelenting ETF supply.”

Importers are rushing to beat new gold restrictions proposed by India’s central bank, according to Rajesh Khosla, managing director at MMTC-PAMP India, in New Delhi.

“Supported by strong physical demand from India and China,” says Mumbai-based brokerage Emkay, “gold prices in India can be supported by physical demand ahead of Akshay Tritiya” – the spring festival celebrated this year on May 13 and traditionally an auspicious day on some Hindu calendars for buying gold. 

Indian jewelers are buying gold at up to $12 an ounce over benchmark London prices, Livemint quotes Bachhraj Bamalwa, a director of the All India Gems & Jewellery Trade Federation.

That compares with $2 an ounce before mid-April’s slump in global gold prices.

With gold gifts now in demand for the Indian wedding season – which runs until July –”Should you buy gold [for your own portfolio] this Akshaya Tritiya?” asks Jayant Manglik, president of retail distribution at Indian brokerage Religare Capital, writing for MoneyControl.

“The unambiguous answer is yes. Having gold in the portfolio increases diversification & security while reducing risk & volatility. It is liquid in any country in the world and is virtually physically indestructible.

“The right mix would have between 10 to 15% of your investible surplus.”

On the supply side, meantime, the world’s largest gold miner corporation – Barrick Gold – has restructured a deal with the Dominican Republic to share more of the revenues from its giant Pueblo Viejo project with the government.

Barrick cut half-a-billion Dollars of new exploration spending from its 2013 plans following April’s price crash.

Gold mining output from South Africa – formerly the world’s #1 producer nation, but now in 6th place after production halved since 2000 – fell again in March, new data showed today, down a further 6.2% from a year earlier to the lowest levels in nine decades.

Adrian Ash

BullionVault

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Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.

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Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Gold consumption in China, the world’s largest user after India, jumped 26 percent in the first three months of 2013 from a year ago amid strong bullion sales and rising jewelry demand, an association said.

Total consumption reached 320.54 metric tons in the first quarter, the China Gold Association said today in an e-mailed report. Purchases of gold bars surged 49 percent to 120.39 tons, while jewelry gained 16 percent to 178.59 tons, it said. Gold output in China, the world’s largest producer, gained 11 percent in the same period to 89.91 tons, according to the association.

First-quarter sales preceded gold’s slump into a bear market last month, with prices tumbling 14 percent the two days through April 15, the worst drop in three decades. The slump led to a surge in demand for jewelry, coins and bars from India and the U.S. to China. China’s imports of the metal from Hong Kong surged to a record in March, the Hong Kong government said on its website today.

“This came out better than our expectation because these sales were done before the gold market rout in April when more people rushed to buy gold,” Song Qing, fund manager at Lion Fund Management Co., China’s first asset manager to place money in foreign exchange-traded gold funds.

Bullion of 99.99 percent purity on the Shanghai Gold Exchange dropped 4.3 percent in the first quarter, and was at 294 yuan a gram ($1,486 an ounce) today. The weeklong Lunar New Year holiday, when consumers bought gold jewelry and bars as gifts in the most-important festival, was in February this year. In London, gold for immediate delivery traded 13 percent lower this year at $1,459.29 an ounce.

Elliott: Gold Is Still Best Store of Value

To contact Bloomberg News staff for this story: Feiwen Rong in Beijing atfrong2@bloomberg.net

To contact the editor responsible for this story: Brett Miller at bmiller30@bloomberg.net