GOLD FOR THE GOOD AND BAD THAT BRINGS ABOUT A GOOD QUESTION

Excerpt from Asset Strategies International (ASI) on core holdings.

Core holdings were on my mind two weeks ago, when I flew to St. Petersburg, Florida, to represent ASI at the Investment U conference the Oxford Club was hosting. I leaned back in my seat, opened the Financial Times – and saw an article about the importance of core holdings to Libya’s beleaguered dictator, Col. Moammar Gadhafi.

The article explained that Gadhafi had only one hope of financing his war against the insurgents who were threatening to topple his regime. He couldn’t borrow the money; he couldn’t even access funds Libya had moved abroad. His accounts were frozen worldwide.

His only source of funds was his “core holdings” – the gold that he had stored at the Libyan Central Bank. While most central banks store their gold in London, Switzerland, or New York City, this is not the case with Libya. Gadhafi had always insisted that Libya’s gold be stored at the Libyan Central Bank in Tripoli.

We’re not talking about some coins or bars tucked away in a safe-deposit box, by the way. Libya’s gold holdings rank in the top 25 in the world. It is estimated that the bank is sitting on roughly 144 tons of the world’s oldest and best form of money. At today’s prices, that is $6.5 billion worth of the yellow metal. That may only represent a few minutes worth of government spending in this country; but in Libya, it’s enough to finance a war.

So while no legitimate business or government will loan Gadhafi money now, or even trade with him, his hoard of gold may be the answer to his financial needs. He can use it to acquire currency, arms, food, and other supplies for his military.

As I read the article, I was struck by this real-world example of the message we have preached so many times: In an emergency, you need some “core holdings” of gold and silver. There is simply no better “wealth insurance” than the real thing – gold and silver that is in your own personal possession.

We saw the value of gold as emergency money when the Vietnamese refugees fled South Vietnam in the 1970s. If you have not heard this story before, please click here to read Michael’s Tale of the Taels. We saw it repeated when South Korea emerged from the Asian currency crisis several years ago. Gold helped them rebound faster than most other countries from the Asian flu.

We saw it in this country when the stock market tumbled. In many cases, margin calls could only be met by the liquidation of gold and other precious-metals holdings (which, by the way, maintained their value while paper assets were crumbling).

Time and time again, we have seen the value of gold as wealth insurance. Granted, some causes are nobler than that of Libya’s dictator. In good times and bad (and for good guys and bad), throughout history the role gold can play in solving a financial emergency is well-documented.

Simply put, gold is a store of value, in a liquid form, for a financial emergency that you pray you never have. You buy it and you hold onto it regardless of price fluctuations. If you have a financial emergency, you sell the gold to meet those obligations. That’s what it is there for.

If you are fortunate to never have a financial emergency, even better. You can make certain your children or grandchildren have their own Golden Anchor to protect them from the vicissitudes of life, by leaving them your core holdings. What a great blessing that would be for them!

Too many times when discussing gold, people get wrapped up in debates about interest, dividends, yield, and profit, when they argue about whether or not gold is a useful asset class. We say, start with the basics. The number one reason to include gold in your portfolio is wealth insurance.

Do you have enough gold and silver in your core holdings? Have you exchanged all the depreciating dollars you should, to achieve your own “sleep at night” comfort?