Gold Rush Frenzy: Focus on Businesses, Not Bullion

A client recently approached a financial expert seeking to add gold to their portfolio after watching a social media reel that highlighted central banks' increasing gold reserves, de-dollarization, and geopolitical tensions. However, the expert warned that these factors are not driving the current gold price rise but rather being used as narrative explanations for a price move that has already occurred.

Warren Buffett's 2011 letter compared the world's gold stock to America's farmland and businesses, highlighting that the former would remain unchanged in size while the latter would produce enormous real output. Berkshire Hathaway did take a stake in Barrick Gold in 2020 but exited within two quarters, suggesting a tactical bet on the gold price rather than genuine conviction.

Gold-linked businesses can be more attractive than physical gold itself as they have earnings and are capable of producing value. However, it's essential to distinguish between companies that genuinely benefit from rising gold prices and those that merely ride the trend.