The University of Texas Investment Management Co. has been making plans to convert their gold investments into gold bullion in 2011. Fear of demand outweighing gold supplies was the primary motivator. This is because Comex gold options and futures typically extend beyond the actual physical gold held in its warehouses. Hedge fund manager J. Kyle Bass said that if only 5% of the contract holders decided to take delivery of gold, there wouldn’t be sufficient supplies to cover the demand.
University of Texas hedge managers opted to take delivery of bullion in order to protect against the dwindling supply of the metal. As Bass said, “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.”
Many investors simply avoid purchasing gold indirectly via certificates, derivatives, or other investment vehicles that do not immediately provide physical ownership of gold. Instead, gold bullion bars or coins can be purchased outright and managed directly by investors.
Gold has experienced a 10-year rally as investors choose to trade in their dollars for assets with real intrinsic value. U.S. Representative Ron Paul said, “Why hold your money in dollars when the Fed can double and triple the supply rather quickly and quietly and won’t even tell us what they are doing? Logic tells me a lot more people will do it.”
Recent statistics have shown that a growing number of people are choosing to own physical gold bullion. Bass, who assisted the University of Texas in their physical gold conversion, holds a significant amount of bullion. He said, “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.”
Currently, many investors are keeping tabs on U.S. monetary policies and the spreading European debt crisis as primary indicators of where the gold price is headed next. It appears that debt concerns will not be assuaged anytime in the near future leading many to believe that the value of gold will continue its upward trajectory. The precious metals consultancy GFMS has stated that the price of gold could exceed $1,600 per ounce by the end of 2011 “as investors' appetite for gold sharpens further.” For now, the value of gold per ounce is about $1,560 and steadily climbing despite minor setbacks along the way.