informationliberation
The news you're not supposed to know...




Austrian Economics: Understand Economics, Understand the World
The Century of the Self: The Untold History of Controlling the Masses Through the Manipulation of Unconscious Desires
The Disappearing Male: From Virility to Sterility

The Obama Deception: The Mask Comes Off
Operation Gladio: The Hidden History of U.S. Sponsored False Flag Terrorism in EuropeThe New American Century: The Untold History of The Project for the New American Century
(more)
Article posted May 08 2011, 7:27 PM Category: Economy Source: Peter Schiff Print

The Institutional Gold Rush

by Peter Schiff

I have worked on Wall Street my entire life, and one thing I've learned is that large institutional investors, like pension funds and endowments, rarely veer from the herd. They manage too much of other people's money to stick their necks out alone if their investments go bad, at least they can point to everyone else who fared just as poorly.

For this reason, these funds are often lagging in their perception of crucial market changes changes such as a doomed currency. While many of us are buying precious metals to hedge against the collapse of the dollar, gold and silver have been taboo investments on Wall Street for years. Fund managers are taught that gold is a "barbarous relic" much better to stick with government bonds and blue-chip stocks. That's what everyone else is doing.

But there are early signs that the herd is changing direction.

THE CURRENCY THAT CAN'T BE PRINTED

In a remarkably under-reported story, the University of Texas' endowment fund the second largest in the country, after Harvard's added about half of a billion dollars worth of gold to its portfolio just this month, on top of the half-billion it purchased several months prior.

The university's endowment now owns a staggering 6,643 bars of bullion (664,300 ounces), which have already appreciated by over $40 million since mid-April when the bars were delivered to a dedicated HSBC-owned vault in New York City. Not a bad start.

Kyle Bass, the well-known Hayman Capital hedge fund manager and UT endowment board member, advised the university on the purchase. He stated his reasoning plainly: "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? I look at gold as just another currency that they can't print any more of."

Apparently, the university agrees that sitting on a pile of fiat paper is an act of faith not befitting a prudent and enlightened institution.

AN INSTITUTIONAL AWAKENING

The purchase is certainly causing a few heads to turn.

Now that a major endowment has taken this step, other fund managers are going to be emboldened to follow through on their gut instincts. These are smart guys, after all; they are aware that although their funds may be posting nominal gains, they are losing much more in purchasing power. I'm sure many have privately bought precious metals, but now they have cover to do so professionally.

Perhaps the most interesting part of UT's billion-dollar repudiation of Fed Chairman Bernanke and his printing press, however, is that the fund demanded physical delivery of the bullion. While more commonplace in Europe, this is truly unprecedented for a stateside institution.

The delivery of physical bullion has at least two important implications. The first is that UT perceives gold to be a long-term strategy for wealth preservation, as opposed to a short-term speculation. The second is that UT must be somewhat concerned about the stability of financial markets in general, so it wants to own physical gold safely stored in a vault, as opposed to owning paper claims, shares of gold funds, or other instruments with counterparty risk.

HUGE RAMIFICATIONS

I have long recommended that investors hold at least 5-10% of their portfolios in physical precious metals. UT's $1 billion position represents roughly 5% of its $20 billion endowment, so they have reached my minimum recommendation but likely have more buying to do.

As endowment after endowment decides to sell billions of Bernanke's dollars and diversify into gold, what might this do to the gold price? If these colossal funds start getting the idea that holding 5% of their portfolio in gold is more conservative and intelligent than holding the current average of 1%, what will this mean for gold demand? The answer is obvious and the ramifications huge.

ONE SMALL STEP FOR INSTITUTIONS, ONE GIANT LEAP FOR GOLD

If US university endowments were to increase their gold positions from the current average of 1% to an average of 5% of their portfolios, it would equal $20 billion, or roughly 400 metric tons of gold at today's spot price. This is significantly more than the entire yearly gold production of China, the world's largest producer.

Beyond endowments, private foundations in the US, with 2010 assets totaling nearly $600b, would similarly require nearly 600 metric tons of gold if they sought to hold 5% of their assets in the metal almost twice China's yearly production.

And again, these are just US endowments and foundations; there's a whole world of demand beyond the borders and we can't forget sovereign wealth funds (SFWs).

The largest SWF in the world, Abu Dhabi Investment Authority, has assets worth over $600b alone. The second and third largest funds, Norway and Saudi Arabia, together constitute roughly a trillion dollars in assets.

GETTING IN BEFORE THE HERD

The point here is simple: the total investable funds around the world are immense relative to the size of the gold market. It's not hard to perceive what a simple move from 1% to 5% of the average institutional portfolio would do to the price of gold, and this why the University of Texas' bullion delivery is so important it's a vivid indication that such a move is now taking place.

Gold remains widely neglected among the big-money players, but it's clear that they're beginning to come to terms with the US dollar's terrible prospects. After all, while fund managers don't want to veer from the herd, they also don't want to follow the herd off a cliff.

The University of Texas, with its billion-dollar stash of physical gold, is one institution that has finally seen the cliff. The physical delivery of this purchase exemplifies the severity of the threat that UT's endowment board perceives.

The average investor should recognize that there is little time left to purchase precious metals before substantial new demand drives the price of gold higher. A very small percentage change in large institutional investment is all that's required for massive gold price increases.

I believe we are on the cusp of a smart-money gold rush. It will drive gold to a record in real terms, even before retail investors join in. Though you may have missed the last decade of gains, there is still a chance to buy in before the stampede.
___
Peter Schiff is president of Euro Pacific Capital and author of The Little Book of Bull Moves in Bear Markets and Crash Proof: How to Profit from the Coming Economic Collapse. His latest book is How an Economy Grows and Why It Crashes.

Copyright 2011 Euro Pacific Capital





Latest Economy
- Chicago Institutes New "Amusement Tax" On Netflix, Streaming Services
- Record 93.6 Million People Not in American Labor Force, Highest Since 1977
- Barack Obama Promises That Events In Greece And Puerto Rico Will Not Cause A Global Financial Crisis
- Oregon Legalizes Pot this Week -- But Thanks to the Liquor Control Commission, You Can't Buy It
- Greece Illustrates 150 Years of Socialist Failure in Europe
- VIDEO: Americans Refuse to Purchase 10 oz Silver Bar Worth $160 for 10 Bucks
- The 'Recycling' Scam Falls Apart
- Which Countries Prefer Capitalism?









No Comments Posted Add Comment


Add Comment
Name
Comment

* No HTML


Verification *
Please Enter the Verification Code Seen Below
 


PLEASE NOTE
Please see our About Page, our Disclaimer, and our Comments Policy.


FAIR USE NOTICE
This site contains copyrighted material the use of which in some cases has not been specifically authorized by the copyright owner. Such material is made available for the purposes of news reporting, education, research, comment, and criticism, which constitutes a 'fair use' of such copyrighted material in accordance with Title 17 U.S.C. Section 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner. It is our policy to respond to notices of alleged infringement that comply with the DMCA and other applicable intellectual property laws. It is our policy to remove material from public view that we believe in good faith to be copyrighted material that has been illegally copied and distributed by any of our members or users.

About Us - Disclaimer - Privacy Policy



Advanced Search
Username:

Password:

Remember Me
Forgot Password?
Register

Police Shut Down Family Soccer Game For No Permit "Im In Charge Here" - 07/06Andy's Candyland: How Chicago Police Robbed & Destroyed A Youth Rec Center - 07/06Police Draft 14-Yr-Old Into Informant Slavery, Jail Him For Life When He's Later Caught Selling Cocaine - 06/27Video: Cop Threatens to Break 14-Yr-Old Boy's "F**king Neck," Claims He Was Using "Verbal Judo" to "Calm Him" - 07/07College Student Waits For Well-Lit Area To Pull Over, Gets Charged With Felony - 07/07Man Says "F**k You" to Cop, Gets Arrested - 07/07NYPD Deleted Email Evidence Allegedly Showing Secret Quota System - 07/07Immigrant Accused Of Murdering Woman Admits to Shooting, Says It Was An Accident, Asks For Harshest Punishment - 07/06

Man Follows Speeding Cop, Finds Out He Was Speeding To Buy PeanutsMission Creeps: Homeland Security Agents Confiscate Women's Panties For 'Copyright Infringement'Cop Shoots Couple's Dog, Threatens Jail For Trying To Save Dog's LifeSWAT Team Shoots Teen Girl & Her Dog During Pot Raid On Wrong HomeDurham, NC Cop Testifies Faking 911 Calls To Enter Homes Is "Official Policy"Indiana Sheriff Says US A "War Zone" To Justify New MRAP Military VehicleTampa Cops Surveil Pot Dealer, Catch Him Selling Pot, Raid His Home & Kill Him"You Just Shot An Unarmed Man!": Witness Says Police Shot His Friend With His Hands Up
(more)

 
Top