The Warren Buffett Indicator Signals ‘Buy’ for Gold

The Warren Buffett Indicator Signals ‘Buy’ for Gold

When it comes to understanding value, few can hold a candle to Warren Buffett.

The so-called Oracle of Omaha has seen his fair share of booms and busts. And through it all he has lived by one simple investing motto: buy cheap.

It is a simple, but effective strategy. One that relies on identifying solid companies that are undervalued.

So, given the recent market crash, you may be thinking now is a great time to buy, right?

All around the world we’ve seen a huge sell-off in stocks. An opportunity that seems to suggest now is a great time to snap up some great value.

Buffett though, probably wouldn’t agree…

No bargains, just bloat

Just prior to the dotcom bubble bursting, Buffett showed off a fascinating chart. One that measured the market value (capitalisation) of all stocks in comparison to GDP.

And while he conceded that it had its limitations, like any indicator, he dubbed it ‘the best single measure of where valuations stand at any given moment.

At the height of the dotcom bubble, this indicator peaked around 120%. Highlighting the heavily bloated valuations compared to productivity at the time. An unsustainable balance that led to the huge market crash.

We saw the exact same thing in 2008, as well. The indicator topped out around 100% before the crash hit. Valuations had begun to outpace GDP and eventually collapsed under the weight of the GFC.

Which brings us to today. A market that might appear cheap given the recent crash.

Buffett’s indicator suggests otherwise though. Sitting at a record high of 179%, it suggests stocks are heavily overvalued right now.

Buffet Indicator - Gold Price

Source: Reserve Bank of St. Louis / Business Insider

In other words, the real stock market crash may be yet to come.

Which is why now is the perfect time to buy gold.

Preserve and prosper

Whether you’re looking to protect your wealth or grow it, gold is a fantastic option right now.

Despite the recent rally in stock markets, it is still too early to celebrate just yet. The economic road to recovery is far from clear or simple.

And even if central banks continue to artificially prop up markets, it will only lead to greater distortions. A further inflation of the bubble, if you will.

That’s why you need to consider buying gold. Not just because it can safeguard your wealth, but because it can also help grow it.

But don’t just take my word for it. Renowned financial guru, Jim Rickards, has seen the writing on the wall for years now. He has adamantly told any and all who will listen that gold is the answer.

I thoroughly recommend you read all about his thoughts in this report, right here.


Ryan Clarkson-Ledward,
For The Daily Reckoning Australia