Kyle Bass: Gold Has Nothing But Upside
Hedge fund manager Kyle Bass believes investors have yet to see the highs in gold. Bass cites a pattern that has been established among central banks, where fiscal deficits are monetized through the expansion of balance sheets.
"Call it what you want," the founder of Hayman Capital tells CNBC's Bob Pisani. "Call it LTRO, call it quantitative easing, or any acronym that the powers that be want to call it. I call it money creation out of thin air, and therefore, gold has got a lot further to go."
Bass's reputation as a gold bull is well-deserved. When Texas University invested $1 billion in gold, he advised its board to take physical delivery of the precious metal. According to Bass, the reasons for taking physical delivery were more practical than they may seem.
"It costs a certain amount of money to roll a front-month futures contract, [whereas] to take delivery it costs to store and insure. I determined that the rolling cost about 90 basis points per year, whereas the board was able to negotiate storage and insurance for a whole lot less. Given that," Bass says, "you do not do your fiduciary duty if you do not take delivery."
Unlike other gold bulls (such as presidential hopeful Ron Paul), Bass does not support a return to the gold standard.
"To tie an enormous economy like ours to a single metal coming out of the ground may be a bad idea. Gold bugs may talk their own capital. Sure, I own some of the metal, but tying the whole economy to it? Rationally, I think not," Bass stated.
However, Bass is not against tying the economy to something more sensible, such as a basket of goods and services. "What we need is to be able to limit the amount of capital created into our system."
Currently, gold futures are trading around $1700 an ounce.
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