Written by Rebecca Lipman

Warren Buffett may have been born an investing genius, but he received help along the way from his mentor, famed value investor Benjamin Graham. Together, the "godfather and godson of value investing" have made quite a fortune.
Their conquests over the market have also earned them devoted followers. If Buffett buys IBM, his fans are influenced to buy IBM stock too. If Buffett says Bank of America is undervalued, it just may be.

Buffett on Gold
Buffett has taken a controversial, if not contrarian, attitude towards gold. He sees gold as an inanimate object that investors flock to when they fear other assets. It holds little actual value beyond some industrial and decorative utility, both of which is "limited and incapable of soaking up new production." Therefore, any investor holding gold instead of stocks is acting out of irrational fear. (via Ritholtz)

David Galland, managing director of Casey Research asks "How can it be that Buffett, perhaps the most successful (and definitely the most well-known) investor of our time, believes that gold has no place in an intelligently allocated investment portfolio?" Consider that gold has been the most popular "counter-trend investment" in periods when stocks and bonds were underperforming.

To understand, we should look back to his mentor Benjamin Graham: During Graham's adult life, in the mid 1900s, owning more than a small amount of gold was illegal between 1933 and 1974. Graham passed away in 1976. He never really had the chance to use gold as a counter-investment.

Bucking the Trend
It stands to reason that gold was never a part of the value investment theory so popular to today's investors. Galland believes this also goes a long way in explaining why "the talking heads in the financial media, and Warren Buffett continue to misunderstand gold as a portfolio holding."

It follows that investors who capitalize on the gold trend may have an advantage over those who stick to the old principals, and that this contrarian view has allowed some investors to enjoy the rising valuations of gold while others miss out.

Galland concludes that Buffett's, and thus Graham's, arguments against gold hold no water. "Meanwhile, we'll prosper, armed with the understanding that gold fulfills a very important and specific purpose in a portfolio, namely as real money that protects net worth during periods marked by excessive government debt and currency debasement such as we are currently experiencing."

Interactive Chart: Press Play to compare changes in market cap over the last two years for the stocks mentioned below.

Business Section: Investing Ideas
So do you agree with Graham and Buffett or Galland?

If you agree with Galland and believe gold has a place in your portfolio it may not be too late to jump in the game.

For ideas, we screened a universe of gold miner stocks and found three that have seen significant levels of insider buying in the past six months. Insiders know their company better than anyone else does, and if they are putting their own money on the line it is a sign they believe the share price is currently undervalued.

Do you agree with these gold miner insiders? (Click here to access free, interactive tools to analyze these ideas.)

1. Golden Star Resources, Ltd. (NYSE: GSS): A gold mining and exploration company, through its subsidiaries, engages in the acquisition, exploration, development, and production of gold properties. Over the last six months, insiders were net buyers of 150,000 shares, which represents about 0.06% of the company's 256.49M share float.

2. Kingold Jewelry, Inc. (Nasdaq: KGJI): Engages in the designs, manufactures, and sells gold jewelry and Chinese ornaments in the People's Republic of China. Over the last six months, insiders were net buyers of 100,000 shares, which represents about 0.39% of the company's 25.70M share float.

3. Solitario Exploration & Royalty Corp. (NYSE: XPL): Engages in the exploration and acquisition of precious metals and base metals in Brazil, Mexico, Peru, and Bolivia. Over the last six months, insiders were net buyers of 50,000 shares, which represents about 0.17% of the company's 29.56M share float.

Disclosure: Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Insider data sourced from Yahoo! Finance.

Related Articles
  1. Mutual Funds & ETFs

    Top 3 Commodities Mutual Funds

    Get information about some of the most popular and best-performing mutual funds that are focused on commodity-related investments.
  2. Chart Advisor

    Agriculture Commodities Are In The Bear's Sights

    Agriculture stocks have experienced strong moves higher over recent weeks, but chart patterns on sugar, corn and wheat are suggesting the moves could be short lived.
  3. Investing

    Procter & Gamble Restructures, Sheds 100 Brands

    All businesses face adversity, and Procter & Gamble is no exception. We take a look at recent developments affecting this global giant.
  4. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  5. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  6. Investing News

    Glencore Shares Surge in Hong Kong

    Shares of Glencore International, a leading multinational commodities and mining company, jumped by around 15% on London Stock Exchange, after the shares had gained about 71% earlier on the Hong ...
  7. Investing

    Have Commodities Bottomed?

    Commodity prices have been heading lower for more than four years, being the worst performing asset class of 2015 with more losses in cyclical commodities.
  8. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  9. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  10. Investing

    The Quinoa Quandary for Bolivian Farmers

    Growing global demand for quinoa has impacted Bolivian farmers' way of life. Should the American consumer be wary of buying this product?
  1. How can insurance companies find out about DUIs and DWIs?

    An insurance company can find out about driving under the influence (DUI) or driving while intoxicated (DWI) charges against ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!