Daniel Lacalle

This will make you think twice about your long gold

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This is an email sent by Cave Montazeri of Barclays Capital doing the rounds all over the market. Great piece and deserves to be read:”You could take all the gold that’s ever been mined, and it would fill a cube 67 feet in each direction. For what that’s worth at current gold prices, you could buy all — not some — all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?” – Warren Buffett

Being a geek from the Golden State, I figured I ought to check those numbers:

Gold is traditionally weighed in Troy Ounces (31.1035 grammes). With the density of gold at 19.32 g/cm3, a troy ounce of gold would have a volume of 1.61 cm3. A metric tonne (equals 1,000kg = 32,150.72 troy ounces) of gold would therefore have a volume of 51,762 cm3 (i.e. 1.61 x 32,150.72), which would be equivalent to a cube of side 37.27cm (Approx. 1′ 3”).

According to the world Gold Council (www.gold.org), at the end of 2009, the total volume of gold ever mined was approximately 165,000 tonnes. That is equivalent to 8,540,730,000 cm3; or about 300,000 cubic feet, which matches that Warren Buffett said (“You could take all the gold that’s ever been mined, and it would fill a cube 67 feet in each direction”). At current price of gold ($1,361) that is a total value of $7.2trn

Exxon Mobil’s market cap is $340bn so 10 Exxon Mobils would cost you $3.4trn (for ease of computation this is assuming to takeover premium). Alternatively, for $3.4trn you could also take 100% ownership of ALL the following companies: Exxon Mobil, Apple, Microsoft, Berkshire Hathaway, Walmart, Google, Procter & Gamble, IBM, J&J, GE, AT&T, Chevron, JP Morgan, Oracle, Coca-Cola, Pfizer, Wells Fargo, Cisco Systems, and Intel

Finally on his last point, according to the USDA, there is 922m acre of farmland in the US, of which 406m can be used for crops (the rest includes woodlands, pastureland, ponds, wastelands, etc…) at an average price of $3,500 per acre; for a total purchase price of $3.2trn (for ALL the farmland)

So the math adds up: $3.4trn worth of S&P 100 companies (10 XOMs for example) + $3.2trn for all the US farmlands + some pocket change left to spend on ipads and parties. Good job Warren Buffett. I’ll buy some farmland REITs.

http://www.ritholtz.com/blog/2010/08/i-love-gold/

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