Pension Funds Join the Gold Party—Things Are About to Get Interesting Jeff Clark, Senior Analyst, GoldSilver
SEP 4, 2020
Today, institutional participation – the enormous Wall St and global wealth management and investment firms and their clients from hedge funds to pension funds – in the gold market is minimal.
But with interest rates near zero globally, we’re seeing signs that this is changing rapidly.
The latest such news was first brought to our attention by our investor, Gold Bullion International, who services institutions like these: the Ohio Police and Fire Pension fund announced it will allocate 5% of its assets to gold.
This follows on the heels of other institutional investors that bought gold or silver in Q2, but it’s the first major pension fund this year to publicly announce it has entered the gold market.
The fund has $15.7 billion in Assets under Management (AUM). While there’s no timeline for buying the gold, a 5% allocation equates to over $750 million.
That’s roughly 2.5% of ALL the new gold brought into circulation last year for investment. From one fund.
A couple things make this very interesting. First, Ohio is only the 7th most populous state in the US. And this fund is only one of eight similar public pensions in that state alone. There is a ton— literally—of cash from these kinds of entities that could look at entering the gold market.
Second, this is a very traditional “money” manager. For them to enter the gold market indeed signals a shift. Pension funds are typically among the most conservative, long-term oriented investors, and don’t jump in and out of positions. This public move from a large mainstream fund is likely to spur other institutional investors to consider making an allocation to gold, too.
This is a trend we expect will pick up steam, particularly in a ZIRP (Zero Interest Rate Policy) world. One of the most supportive conditions for gold is a negative “real” interest rate (10-year Treasury rate minus the CPI). When real rates are zero or negative, like they are now, gold has historically performed very well. The Fed and other central bankers have essentially signaled that they don’t plan to change this policy anytime soon.
The compelling angle to all this is that most pension funds currently have zero direct exposure to gold. Estimates vary, but we’ve seen percentages from less than one percent to as high as two percent. That two percent figure looks like this.
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