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"Don't Sell Gold Bars" Says Texas Fund Director

The UNIVERSITY OF TEXAS Investment Management Co. shouldn't sell the Gold Bars it bought as a hedge against inflation and financial crisis, says the director who urged the move.

"I'm against selling any of the gold," Kyle Bass – a managing partner at hedge fund Hayman Capital Management – told a meeting of the fund directors in Austin, Texas on Thursday.

"As every day goes by, I see deflation in the things you own and inflation in the things you need."

Last April Bass recommended and advised on the conversion to physical Gold Bars of futures contracts – which set a price for future delivery, but which are most typically settled in cash, not metal – held for the various educational endowment funds run by University of Texas Investment Management Co. (Utimco).

Initially costing $500 million in July 2010 – and worth $991.7m by the time physical Gold Bars were delivered to Utimco's custodian, HSBC Bank in New York, 10 months ago – its gold position is now valued at $1.2 billion, according to Utimco's CEO, Bruce Zimmerman.

The Gold Investment was "a hedge against lack of confidence in financial assets due to lack of government fiscal and monetary discipline," said CEO Zimmerman to Asset International's AI-CIO magazine in July 2010. Utimco had begun "laddering in" exposure to Gold Futures "over a number of months."

Last spring's switch to physical Gold Bars was deemed controversial by some observers – "silly" said Dean Baker of the Center for Economic and Policy Research in Washington, and "more of a challenge to the system...poor sportsmanship," according to futures trader Ralph Preston at Heritage West Financial Inc. in San Diego.

But "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" Gold Bars, countered Bass.

MF Global clients who held futures contracts through the failed brokerage have now filed at least seven separate lawsuits, reports BusinessWeek, alleging that a total $1.2 billion in assets went "missing" amid its collapse last October.

The most that British clients of MF Global Holding Ltd can receive at present is just 26 cents on the dollar, said the administrators KPMG this week.

Utimco's board of directors, which now runs some $25.7 billion for the University of Texas in total, did not call for any change to its mix of assets at this week's meeting, according to The Statesman newspaper.

"I think we've got it where we ought to," it quotes one Utimco board member.

Recommending that the board continue with Utimco's Gold Investment, Kyle Bass noted how global money supply has swollen by $15 trillion "that didn't exist a few years ago."

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