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Monday, October 21, 2002

By Alan Lavine and Gail Liberman

We admit we've been having difficulty digesting breakfast lately.

The headlines keep blaring that a war with Iraq is inevitable and the Dow keeps gyrating before sliding to record lows.

We had a vivid debate over whether investing in gold bullion makes sense today.

GAIL: I think we should be prepared for a crisis.

AL: I just want to play golf and leave my money in stock and bond mutual funds.

GAIL: If we have some type of unbelievable crisis, gold coins or bullion could come in handy.

We were interested in a suggestion by Edward F. Mrkvicka, in his old book, "1,037 Ways to Make or Save Up To $100,000 This Year Alone (Instant Improvement Inc.)." Mrkvicka advised buying gold and/or silver bullion or bullion coins.

Keep them in your home, not the bank, he said.

"In a collapse ... your safe deposit box may be sealed by governmental order, which means your gold and silver will be inaccessible," his book said. "Your deposits, if they were worth anything, may suffer the same fate as in 1929, and/or you might have to wait months or years to be able to withdraw the funds."

Could we possibly be approaching the crisis point that Mrkvicka warned about in this book, published in 1991?

We decided to track down Mrkvicka, whose latest book is "J. K. Lasser's Pick Winning Stocks (Wiley)." He won't say we're heading for the crisis he described, but he does believe things currently are much worse than many indicate.

"The inflation rate (just under 2 percent at this writing) is a phony figure," Mrkvicka said. "Just ask any woman who does the family shopping once a week. It exceeds 4 percent. You have to wonder why everybody has record credit card debt. Bankruptcies are at record highs."

With the possibility of a war, he says, you could see oil going to $50 to $100 a barrel, he warns. "That could make a gold purchase extremely wise. Gold is undervalued right now."

Mrkvicka maintains his belief that it's a good idea to keep enough gold in your home to get you by for 30 to 60 days.

"If terrorists were able to get to Wall Street and destroy the computer infrastructure for 30 days, our economy would grind to a halt immediately," he said. "Some people would be able to get by. A lot would not.

"I wouldn't say to have your entire gold holdings in your house, but enough so that if the worst happens, you can get by for the next 30 to 60 days. For anything that goes beyond 30 to 60 days, you're talking the end of the world, and it won't matter anyway!"

One of the easiest ways to invest in gold is to buy gold bullion coins such as the American Eagle, Canadian MapleLeaf and South African Krugerrand. The coins come in sizes of 1 ounce of pure gold, as well as smaller denominations of one-tenth and one-twentieth of an ounce. They are considered legal tender because their authenticity is guaranteed by their country of origin. Bullion coins easily can be bought and sold worldwide. The price of the coin is based on the underlying price of gold bullion, plus a premium of 4 percent to 8 percent. The prices of the coins are published in many newspapers.

You also can own bars of gold bullion and have them stored by a commercial bank, brokerage or precious metals dealer. However, you must pay a storage fee.

Mrkvicka concedes that he's conservative. Not everybody necessarily agrees with his view.

Paul Phillips, managing director of William D. Witter Inc. and co-manager of the Enterprise Small Company Growth Fund, questions the value of gold coins in a crisis.

"I think they are a vehicle of real pessimism," he said. "I don't know if I went to the local supermarket and said, 'Here's a gold coin,' how they would make change from it. Maybe the gold coins would be of some value, but I'm really not sure."

Phillips is among several managers of the Enterprise Group of Funds, Atlanta, that maintain a more positive outlook for the economy.

He envisions the economy growing at about 2 percent to 2 1/2 percent for the fourth quarter.

Phillips concedes that the Iraq issue is serious. "There would have to be some resolution of that before there's be a really strong rally in the stock market," he said.

However, he doesn't necessarily advise selling stocks just because they've dropped so much from their highs. Instead, he suggests, just keep enough in cash so that you have enough money to meet your obligations in the immediate future.