Kyle Bass, a well-known hedge fund manager who profitably shorted the subprime mortgage crisis, strongly believes gold investors should take physical possession of their precious metals. Speaking about his role as a fiduciary board member for the University of Texas Investment Management Company (UTIMCO), Bass explained last year why he advised UTIMCO to take physical possession of its nearly $1 billion worth of gold bars held in COMEX vaults.
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Bass’ comments are particularly important given the newfound love for gold in the mainstream media that we’ve been reporting. Many investors assume that buying a gold Exchange-Traded Fund (ETF) on the COMEX is the same as investing in the physical metal, because such funds are “backed” by physical gold. Even Jim Cramer, who has recently come around to gold, actually advises buying paper gold instruments, rather than the real thing. But Bass shattered the illusion of the so-called “gold backing” of these funds:
The COMEX at the time had about $80 billion of open interest between futures and future options. In the warehouse, they had $2.7 billion of deliverables. So 80 billion of open interest; 2.7 billion in deliverables. We’re going to own it a long time. You’re on the board, you’re a fiduciary, what do you do? That’s an easy one. You go get it.”
The closest Bass gets to directly criticizing paper gold investments is when he describes his experience of auditing the vault where UTIMCO’s gold was held. He discovered that rather than a neat stack of about 1,600 bars of gold, their gold was scattered throughout the vault in multiple locations, a few bars here, a few bars there.
Bass said, “It’s an interesting concept.” No kidding.
So did UTIMCO take Bass’ advice? You bet. In 2011, it moved its gold from the COMEX vaults to its own vault in New York. However, this wasn’t enough.
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