Why Warren Buffett Doesn't Invest in Gold

Warren Buffett does not invest in gold. He has invested almost $1 billion in silver, so the reason for his aversion is not simply a dislike for precious metals. The explanation for Buffett's dislike of gold and for his enthusiasm about silver stems from his basic value investing principles.

Warren Buffett has been very vocal about his disdain for gold as an investment. He sees little to no value in it. What Buffett refers to as a lack of value results from a lack of usefulness. He once stated about gold, "It doesn't do anything but sit there and look at you."

One of Buffett's basic principles of investing is that one should only invest in things that are useful and that serve some purpose and that supply some practical need that people have. Silver has a myriad of industrial and medical uses. In medicine, silver is used in bandages, catheters, and as a healing agent for burns and other health conditions. It's also used for water purification. In electronics, silver is the best metal conductor of electricity and doesn't corrode, so it's used extensively in wiring and connective parts, computers, cellphones, and cameras. It is even used to coat DVDs because it is scratch-resistant.

Therefore, silver meets Buffett's requirement of having a real and identifiable value. Even better, from the point of view of an investor, silver is almost uniquely suited to a number of the uses it serves as an industrial metal and would be difficult to replace with any substitute material.

Gold does not meet Buffett's usefulness requirement. Although it has some industrial applications, it is not virtually irreplaceable as silver so often is. Gold makes pretty jewelry, but it is by and large without practical uses. In Buffett's opinion, since it has virtually no inherent value, it is not a good financial asset. The metal commodity that glitters for Buffett is silver, not gold.