Warren Buffett Buys Silver

Warren Buffet bought 129,710,000 ounces of silver. Berkshire’s net assets are $31 billion or more. Berkshire didn’t mention this in their annual report save a press release on February 3rd that disclosed the purchase due to accusations that the price of silver was being manipulated. January 28th brought a lawsuit that was filed against the firms buying the silver, which maintained that the price of silver was being manipulated since the price of gold was going down, which had never happened before. The law of supply and demand means that silver and gold can move in opposite directions after all.

Silver is in short supply compared to where it was in the past, meaning that the silver prices rise to a level that is meant to balance supply and demand. Silver’s balance with supply and demand will eventually right itself despite being established by a specific price, which is somewhat higher. After the formation of the United States, Congress decided to use a bimetallic standard with the Coinage Act of 1792, calling for the production of silver and gold coins at a fixed ratio of 15 to one. Investors perceive gold as being abundant in the world these days.

 

Gold will someday stop production because forward sellers will have to replace gold that was sold forward at one point. That sort of gold will fall out of production. Buffet follows a rule of investing, start low and sell high. Buffett saw the value of silver left behind depressed prices. Buffett had invested in silver bullion. When he had started investing, it was under $6 an ounce, because silver is trading at over $13 in the present. In 2006, Berkshire made a move to cash out their investment. Berkshire stored it’s silver in London where you do not have to report earnings. Buffett sold this silver at $7.50.

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