Debunking Gaddafi’s Gold

By Frank Holmes

03/25/11 San Antonio, Texas – A Financial Times story caused a stir yesterday by discussing the large amount of gold reserves Libya has stashed away. According to official records, Libya holds 143.8 tonnes of gold reserves, placing it 24th in the world.

The notion that this gold is being used to finance Gaddafi’s war is a faulty one. While 143.8 tons sounds like a lot, it is merely 6 percent of the country’s total foreign currency reserves. The U.S. has nearly 74 percent of its reserves in gold and no one is suggesting we are financing our battles with gold.

Like many oil exporting nations, Libya is paid in U.S. dollars and euros and that means it is far more likely Gaddafi’s soldiers of fortune will be paid in those paper currencies than pieces of gold.

Additionally, there is nothing out of the ordinary for a country to have a percentage of its foreign currency reserves invested in gold. It is prudent for any country with a large amount of reserves to invest a portion of those reserves in non-paper currencies such as gold. This provides inflation-protection against currency instability.

U.S. Global’s Director of Research John Derrick appeared on CNBC’s “Street Signs” to discuss this topic with host Erin Burnett. John explained that the likelihood of gold being the finance arm of Gaddafi’s arsenal is slim. See the video below.

Regards,

Frank Holmes,
for The Daily Reckoning

P.S. For more updates on global investing from me and the U.S. Global Investors team, visit my investment blog, Frank Talk.

Frank Holmes is chief executive officer and chief investment officer of U.S. Global Investors Inc. The company is a registered investment adviser that manages approximately $4.8 billion in 13 no-load mutual funds and for other advisory clients. A Toronto native, he bought a controlling interest in U.S. Global Investors in 1989, after an accomplished career in Canada’s capital markets. His specialized knowledge gives him expertise in resource-based industries and money management. The Global Resources Fund was also Morningstar’s top performer among all domestic stock funds in the five-year period ending Dec. 31, 2006.

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