CHOOSING Allocated Gold gives "additional security" to precious-metals investors, says John Hathaway, manager of the $2.7 billion Tocqueville Gold Fund, explaining the recent move by the University of Texas Investment Management Co.
The endowment manager announced this week that it has moved its gold investment position to an Allocated Gold account – physical bullion owned outright by the investor and stored securely in a professional bullion vault.
UTIMCO says it has taken delivery of Gold Bullion worth nearly $1 billion, which it is storing in a New York vault operated by HSBC bank.
Tocqueville's Hathaway told Bloomberg Television on Monday that, in his view, UTIMCO's decision implied a degree of mistrust of financial institutions.
"They don't trust the banks, they don't trust the lawyers," he said. "They want to have their hands on it, they want to know it's in an allocated account with their name on it. It's just an additional degree of security."
Hathaway added that UTIMCO's decision to invest in physical, Allocated Gold suggests it has invested for the long term.
"It seems to me obviously Texas is not going to trade the gold, it’s there for some period of time," he said.
GFMS, the leading precious metals consultancy, last week reported a surge in physical Gold Investment in 2010. Demand for Gold Bars grew 65.9% to 880 tonnes.
GFMS also believes the shift towards physical gold "ought to mean that investment will be more solid and less prone to short-term selloff of the kind seen in the futures market in late 2010 and early 2011."
Kyle Bass – the Dallas-based hedge fund manager who advised UTIMCO on its move into Allocated Gold – said that UTIMCO has negotiated an annual storage fee of 0.10% of the gold's value. At current Gold Prices this equates to approximately $1 million per year.
Two years ago David Einhorn's Greenlight Capital hedge fund moved its gold position from the SPDR Gold Trust into physically Allocated Gold, saving its clients at least $3.2 million in fees since then.
The SPDR Gold Trust (ticker symbol: GLD) charges a fee of 0.40% of the value of invested assets. At current Gold Prices this would equate to an annual cost of around $4 million on a holding the size of UTIMCO's.
Get fully allocated gold – outside the banks – in your choice of London, New York or Zurich from just 0.12% per year at the world No.1 online, BullionVault...