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 Internationalwho services institutions like these: the Ohio Police and Fire Pension fund announced it will allocate 5% of its assets to goldThis 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.
In other words, the vast majority of pension funds have not yet bought any gold. We’re not implying they all will, but clearly a lot more could and likely will.
And on a global basis, pension funds have a LOT of assets. At the end of 2019 it exceeded $46 trillion (second bar from left), which completely dwarfs the gold industry (middle gold bar).
Even the total value of all known above-ground gold (at $1900) is puny compared to the amount of allocable capital the wide array of institutional investors have at their disposal.
It appears clear that institutional investors are now starting to enter the gold market. This is a new trend in motion, one that could easily last years. It’s a catalyst in and of itself, and one you want to make sure you’re in front of.
And if you manage institutional funds, you might look at Gold Bullion International, who was one of the first to offer global infrastructure for physical gold to the institutional world. With $2.3 billion in gold under management, they’re fully equipped and prepared for the coming gold rush.
(Follow Jeff on Twitter @TheGoldAdvisor
An accomplished analyst, author, and speaker, Jeff Clark is a globally recognized authority on precious metals. The son of an award-winning gold panner, with family-owned mining claims in California, Arizona, and Nevada, Jeff has deep roots in the industry. An active investor, with a love of writing, Jeff eventually became a mining industry analyst, including 10 years as senior editor for the world-renowned publication BIG GOLD. Jeff has been a regular conference speaker, including at Cambridge House and Sprott Resources events, the Silver Summit, and many others. He currently serves on the board at Strategic Wealth Preservation, a bullion storage facility in Grand Cayman, and provides analysis and market commentary for GoldSilver.com.