**Summary of the Warren Buffett Watch Newsletter: Gold’s Meteoric Rise, Portfolio Shifts, and the Berkshire Approach**
The financial world has been captivated recently by gold’s extraordinary rally. After briefly reaching a record high above $4,300 an ounce earlier this week, gold prices slipped on Friday but remain up more than 50% for the year. Even more striking, gold has nearly doubled in value since early last year. According to CNBC Pro’s Fred Imbert, this surge has allowed gold to far outpace the S&P 500’s performance in 2025, marking its best run since the 2008 financial crisis.
What makes this period of gold outperformance especially notable, Imbert points out, is that it has happened during a time when the stock market is not in a bear phase, nor is the global economy in the throes of a major crisis—situations that historically have driven investors to seek the perceived safety of gold. Instead, gold is thriving in a relatively stable, though uncertain, macroeconomic environment.
**The Changing Face of Portfolio Diversification**
Gold’s remarkable ascent is not just a story about price appreciation; it is also reshaping how investors think about diversification. Traditionally, the widely accepted model for a balanced investment portfolio consisted of a 60/40 split—60% stocks and 40% bonds. This strategy was designed to balance risk and return, with bonds serving as a safety net in times of stock market volatility.
Now, however, some Wall Street strategists are questioning this convention. As reported by CNBC.com, many are advocating for a new allocation: 60% stocks, 20% bonds, and 20% divided between gold and bitcoin. This shift is largely driven by the observation that stocks and bonds have been moving in tandem more often than in the past, eroding the effectiveness of bonds as a diversification tool. Additionally, persistent inflation, geopolitical instability, rising government spending, and mounting sovereign debt have weakened the traditional rationale for holding bonds as a hedge against market downturns.
The modern ease of investing in gold—thanks to exchange-traded funds (ETFs) and other accessible vehicles—has also played a role in encouraging individual and institutional investors alike to add gold to their portfolios. The inclusion of bitcoin alongside gold in these new allocation models reflects a growing appetite for alternative assets that are perceived as stores of value or hedges against systemic risks.
**The Buffett Perspective: Gold’s Limitations as an Investment**
Amid the current gold rush, Warren Buffett’s long-standing skepticism about gold as an investment remains a relevant counterpoint. Although the 95-year-old billionaire investor has not commented recently on gold’s latest rally, his views have been well documented over the years. At the 2011 Berkshire Hathaway annual meeting, Buffett explained his philosophy in response to a question about why he avoids heavy investments in commodities like gold.
Buffett outlined three primary categories of investments:
1. **Currency-denominated assets:** These include bonds, bank deposits, money market funds, and cash. Buffett argues that such assets are essentially a bet on the stability and future behavior of governments, since the value of currencies tends to decline over time due to inflation and policy decisions.
2. **Non-productive assets:** Gold falls into this category. Buffett’s famous illustration is that if you gathered all the gold in the world, you could mold it into a cube about 67 feet on each side. You could admire, polish, or even sit atop this cube, but it would not generate any income, dividends, or products. The only hope for profit is that someone in the future will pay more for it than you did, in anticipation that this pattern will continue. For Buffett, this speculation is fundamentally different from investing in productive assets.
3. **Productive assets:** These are investments that generate value over time—such as farms, businesses, or real estate. The key is that they produce something tangible: crops, goods, services, or cash flows. When investing in productive assets, Buffett and his late partner Charlie Munger focus on the value that these assets will deliver over time, not on their daily price fluctuations. They buy businesses or securities with the intention of holding them for the long term, based on the underlying productivity and earning potential of the asset.
Buffett’s view is that true wealth creation comes from owning productive assets, not from speculating on price appreciation of non-productive assets like gold. He acknowledged that rising prices can