Don’t Trust “Gold-Backed” COMEX Funds; Take Physical Possession of Your Gold (Video)
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.
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.
As we reported last year, the State of Texas is now in the process of creating its own Texas Bullion Depository. When the Depository is finished, UTIMCO will move its gold from New York vaults into its own backyard in Texas. This would be the first state-level facility of its kind and may eventually allow account holders in the Depository to cut checks or use debit cards to transact business by drawing directly on their physical gold holdings.
As a precious metals investor, you should be asking yourself – “If the second-largest US academic endowment isn’t confident that its COMEX gold holdings could be delivered in full… What about my significantly smaller personal holdings?” We strongly advise gold and silver buyers to take physical possession of their metals and store them in a private vault facility or home safe.
Some may consider gold ETFs to be a type of gold scam. While this isn’t precisely true, paper gold investments can be very suspect, especially if investors are led to believe they’re buying actual, physical bars of gold. Read more about scams like this in our FREE special report:
Highlights from the video:
“My opinion is very simple. As a fiduciary, which I am in that position [with the University of Texas Investment Management Co.], to the extent that you own gold and are going to own it for a long time – it’s not a trade – it costs us about 90 basis points a year to roll it through financial futures contracts. We went and looked at the COMEX. 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. You go take a billion of the 2.7 billion and let them worry about the rest.
“When I talked to the head of deliveries for COMEX and IMEX, I said, ‘What if 4% of the people want delivery?’ He says, ‘Oh, Kyle, it never happens. We rarely ever get a 1% delivery.’ I said, ‘What if it does happen?’ He said, ‘Well, price will solve everything.’ I said, ‘Thanks. Give me the gold.’
“Then what was interesting was we conducted an audit of the delivery. What was interesting in the audit was they kind of resisted our audit request on the front end. Then they finally allowed us in. We did a random audit of – we had 1600 bars or something like that, and we just wanted to see 20 or 30 of them. They were all over the place in different venues in the vault. They weren’t segregated. So it’s an interesting concept. The exchange is a fractional reserve exchange and they think price will solve everything. So it was actually an easy decision if you’re a fiduciary.”
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