Shortage Threat Drives Texas Schools Hoarding Bullion at HSBC

April 17, 2011, 11:03 AM EDT

By David Mildenberg and Pham-Duy Nguyen

April 18 (Bloomberg) -- Dallas hedge-fund manager J. Kyle Bass helped advise the University of Texas Investment Management Co. on taking delivery of 6,643 gold bars, worth $987 million on April 15, now stored in a bank warehouse in New York.

Bass, who made $500 million with 2006 bets on a U.S. subprime-mortgage market collapse, said managers of the endowment, known as UTIMCO, sought board approval to convert its gold investments into bullion this year. A board member, Bass, 41, said he was asked to help with that process.

While Bass, a managing partner at Hayman Capital Management LP, said in an April 16 e-mail that "the decision to purchase and take delivery of the physical gold" was made by endowment staff members, "I helped where I could." Gold futures touched a record $1,489.10 an ounce April 15 in New York before closing at $1,486.

The Texas fund’s $19.9 billion in assets ranked it behind only Harvard University’s endowment as of August, according to the National Association of College and University Business Officers. Last year, UTIMCO added about $500 million in gold investments to an existing stake, said Bruce Zimmerman, the endowment’s chief executive officer. The fund’s managers sought to take delivery of bullion to protect against demand for the metal overwhelming supply, according to Bass.

Open interest in gold futures and options traded on the Comex typically exceeds supplies held in its warehouses. If the holders of just 5 percent of those contracts opted to take delivery of the metal, there wouldn’t be enough to cover the demand, Bass said.

Printing Money

"If you own a paper contract where they can only deliver you 10 cents on the dollar or less, you should probably convert it to physical," said Bass, who isn’t related to Fort Worth’s billionaire Bass family. He said holding cash wasn’t a better choice because the rate of inflation exceeds money-market rates by 2.5 percent to 3 percent, eroding the value of cash.

"Central banks are printing more money than they ever have, so what’s the value of money in terms of purchases of goods and services," Bass said April 15 in a telephone interview. "I look at gold as just another currency that they can’t print any more of."

Sovereign-debt concerns also boosted demand for the metal on April 15, driving Comex futures to an all-time high. The price has climbed 28 percent in the past year.

Gold’s 10-year rally has attracted billionaire investors such as George Soros and John Paulson, who seek a store of value as record-low interest rates erode returns on currencies.

Wealthy Buyers

Few investors take physical delivery of bullion. As of April 14, 2,860 contracts this month, about 0.5 percent of total open interest, had been converted to metal, exchange data show.

Physical deliveries have slowed as gold topped records this year, said Blake Robben, a senior market strategist who handles deliveries of Comex metals for clients at Chicago-based broker Lind-Waldock.

"It’s usually wealthy individuals with net worths over $1 million who want to take delivery to diversify away from the dollar," Robben said. "Generally, it’s a big hassle and not worth it to take delivery."

Investors can own 100 ounces of gold futures with Lind- Waldock by paying a $100 fee and putting up $6,571 in a margin account to purchase one contract. To take delivery of a 100- ounce bar, investors have to pay the full price of the contract.

Bass, a Texas Christian University graduate who was named to the endowment’s board in August, is a former salesman with Bear Stearns Cos. and Legg Mason Inc. He said about 5 percent of his hedge fund is invested in gold.

The endowment, which oversees funds held by the University of Texas System and Texas A&M University, has 664,300 ounces of bullion in a Comex-registered vault in New York owned by HSBC Holdings Plc, the London-based bank, according to a report distributed at a meeting in Austin.

"I simply voted as a board member to approve the storage facility and concurred with their decisions," Bass said.

-END-

The fact that a major university would put that kind of money into physical gold at these price levels ought to be a wake up call to the investment world. Obviously they believe the price of gold is going MUCH higher from present levels. It is terrific news too in that institutional investors of this type are sheeples in some regards and often tend to copycat each other. Clearly this is a vote of confidence for other institutions to do the same.

When I read the Texas news, I thought the price of gold would really take off. Wrong, instead it sold off which made no sense, as this is not run of the mill stuff. But, as we have learned for so long, Black is White and White is Black in the gold world thanks to The Gold Cartel. In the end, as we also know, it doesn’t matter what they do. The demand for gold and silver is too overpowering for them. All they can is manage their retreat in gold. As for silver, JPM and The Gold Cartel are more like the Confederate army of old fleeing the attacking Union soldiers.

The US rating news…

UNITED STATES RATINGS' OUTLOOK REVISED TO NEGATIVE BY S&P

09:07 US ratings outlook revised to negative from stable by S&P

AAA/A-1+ sovereign credit ratings on the US is affirmed
Relative to 'AAA' peers, S&P sees "very large budget deficits and rising government indebtedness and says the path to addressing these is not clear
S&P sees a "material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns."

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The Saudi oil news is below. The west was looking for the Saudis to increase production in these times of soaring oil and gas prices. This is the worst of news in that regard and VERY bullish for the future prices of gold and silver.

The gold open interest rose 10,263 contracts to 538,416, as the specs take on The Gold Cartel. The silver open interest fell 2382 contracts to 146,270. Either the specs decided to take some profits on Friday and JPM, or other shorts, decided to get out of Dodge to some degree.

Jessie…

Interesting action today

Of course in the secondary action the wiseguys took the opportunity to stage a calculated bear raid on the metals. Kind of like machine gunning the refugees and burning the life boats. Their criminality knows no bounds, has little self restraint, and is lawless, respecting nothing but power.

If you wonder why these bear raids happen, and why the paper bullion bankers defend certain price levels so viciously, often stepping in to hold gains to one or two percent in a day, this may help.

"Open interest in gold futures and options traded on the Comex typically exceeds supplies held in its warehouses. If the holders of just 5 percent of those contracts opted to take delivery of the metal, there wouldn’t be enough to cover the demand, Bass said."

The US markets cannot withstand a determined run on the assets which they have already sold. The financial sector is a deepening cesspool of coverup and deception resembling a confidence scheme, an accident waiting to happen. If it did not involve so many of the well placed and powerful it would have already fallen of its own weight and arrogance.

http://jessescrossroadscafe.blogspot.com/2011/04/standard-and-poors-changes-us-debt.html

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Behavioral Finance Report

*Funny … Friday evening I happen to catch Ron Paul on TV directly followed by Gene Sperling, who has taken over the BF operations from Larry Summers. We went into Sperling’s background in the Friday MIDAS.

*Dave from Denver…

Monday, April 18, 2011

Anyone Doubt That The Fed Manipulates The Markets?

That video is PHENOMENAL and is a MUST-LISTEN for everyone, but especially for ANYONE who doubts that the Fed manipulates the markets intentionally. This guy lays it all out with PROOF using excerpts from actual meetings. It's worth taking the time to understand exactly what is being presented in the first couple of minutes.

LIES AND FRAUD AT THE FED

Bernanke is just as corrupt and Angelo Mozillo, Bernie Madoff and Wall Street - make no mistake about that.