SPDR Gold Trust (ETF) (GLD): Be Civilized and Don’t Buy Gold This Year

When Warren Buffett speaks, the investment world tends to listen, and for good reason. Likewise, when Buffett’s second in command, Berkshire Hathaway Inc. (NYSE:BRK.B) Vice Chairman Charlie Munger, expresses an opinion, you should take note. Nearly a year ago, Munger told CNBC that he thinks that “civilized people don’t buy gold,” instead preferring a collection of well-run business, much like those in Berkshire’s portfolio. While his advice was sound a year ago, it truly resonates this year as analysts across the street slash price expectations and, in some cases, recommend being short gold. Given the turmoil and increasingly negative outlook settling over the gold market, 2013 may be a good year to sit out in pursuit of more prim and proper pursuits.

What Munger advocates
Rather than focus such plebian investment vehicles as gold, or even the gold ETF — the SPDR Gold Trust (ETF) (NYSEARCA:GLD) — Munger talks up Berkshire’s holdings:

We just have a wonderful portfolio in business, if you average them out. By and large they’re doing productive, useful work. It’s not outsmarting the computer systems in the trading markets.

Even though the comment is self-serving, and arguably stale, it highlights an important concept when thinking about the gold market, namely that gold doesn’t really do anything. Unlike silver, which has a myriad of industrial uses, as do Molycorp Inc (NYSE:MCP)‘s rare earths, gold is mostly coveted as a safe-haven investment or inflation hedge.

“I think civilized people don’t buy gold,” Munger said; “they invest in productive businesses.” Where the rare earth materials produced by Molycorp and others are used in health care, technology, water treatment, and defense applications, gold is used for very little beyond jewelry. He may not have had other materials companies in mind, but this distinction for gold is an important one and should not be lost.

The analysts are circling
Both Goldman Sachs Group, Inc. (NYSE:GS) and Deutsche Bank AG (USA) (NYSE:DB) recently cut their respective outlooks for gold for the rest of 2013 and beyond. Deutsche focused on the strength of the U.S. dollar, the shift into stocks, and its view on improving U.S. growth as all being negative for gold over the medium and longer terms. It trimmed its 2013 outlook by nearly 12% and, while it dropped its 2014 projection by 4.7%, it still sees gold climbing to $1,810 next year.