Pension Funds Hold Gold to Diversify Portfolios, World Gold Council Says

Pension funds are holding gold to protect against inflation, market shocks, and less effective bond diversification, according to the World Gold Council. These investors are maintaining gold exposure of about 2% to 5% through physical metal or futures.

Government bonds traditionally offered diversification during market stress. However, the correlation between bonds and equities has risen significantly in recent years. U.S. Treasuries, for example, have shown positive correlation with equities since 2022. Gold, in contrast, has maintained a more stable correlation profile, providing an alternative without the specific risks of owning mining companies.

The €7.7-billion ($8.67-billion) Pensioenfonds PDN in the Netherlands bought gold between October 2020 and April 2021. It reached a 5% allocation and funded this by cutting 10% from government bonds. In the U.S., Fairfax County Retirement Systems holds about 3% of its $6.2-billion portfolio in gold futures. These funds began investing in 2020, seeing gold as an inflation hedge.

Britain’s Now: Pensions Master Trust, managing over £8 billion ($10.6 billion), first invested in gold in April 2021. It now holds about 2% of total assets in gold futures to diversify its portfolio. Australia’s NGS Super has kept a 3% gold allocation since June 2020. The fund uses gold with bonds and other defensive assets to make its portfolio more resilient during volatility.

These case studies show no single target for gold holdings among pension funds. However, a common feature is persistence. Positions opened during the pandemic have remained in place five or six years later.