What the wise man does in the beginning, the fool does in the end (NYSE: BRK. A)

NEW YORK - Legendary investor, Warren Buffett and CEO of Berkshire Hathaway (BRK.A) who has often criticized gold said in a recent article in Fortune that gold is a bubble. Buffett said gold does not have much use besides industrial and decorative utility and he added "if you own one ounce of gold for an eternity, you will still own one ounce at its end." The gold price moves up on fear and as fear grows so does the price of gold. Beyond that, the rising price has cause more buyers. Buffett call these people "bandwagon" investors who have joined the party. This has created a bubble. Buffett added,"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. 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 provides an interesting example saying that all the worlds gold is 170,000 metric tons which can make a 68 feet cube per side. This would be worth $9.6 trillion which Buffett calls cube A. On the other hand Cube B is all the U.S. cropland (400 million acres), plus 16 Exxon Mobils and have $1 trillion left over. He wonders who would buy Cube A. Today's gold production is about $160 billion and people have to take on this supply to keep up prices. Buffett continues "a century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops -- and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil (XOM) will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond."Today as people look at gold Buffett says they are paying dearly for the comfort of words. Buffett called the tech bubble, and he has good reason to now called the gold bubble.