Gold News

Insuring Your Pension Savings

How much gold is too much gold if you're a fixed-income investor...?
 
GOLD DOESN'T pay any income, of course. Which is why retirees and pensioners should hate it, writes Adrian Ash at BullionVault.
 
But since gold cannot go bust – and because its tight supply typically finds strong demand when cash loses value to inflation in the cost-of-living – gold in fact makes the perfect insurance for fixed-income investments like corporate or government bonds. At least, that's what €39 million gold investor Stichting Pensioenfonds Vereenigde Glasfabrieken says.
 
Crazy name, crazy Dutch fund managers. SPVG holds a massive 13% of its assets in gold, running a total €300m ($400m) to try and ensure a pension for workers past and present at the Schiedam, Netherlands glass manufacturer.
 
That compares with the typical 5% or 10% allocation which even the friendliest gold-friendly advisors might suggest. And seeing how the average European pension fund holds 2.7% in ALL commodities, never mind just gold, Holland's central bank, De Nederlandsche Bank (DNB), thinks SPVG is nuts. And so – as its regulator – it's given the fund two months to slash its gold position to below 3% of assets.
 
Good call? Not if you're holding a full 85% of your savings in fixed-income bonds, all denominated in the Euro, and primarily issued by the Dutch or German governments, says SPVG in a statement.
 
Speaking to Investment & Pensions Europe, board member Rob Daamen picks up the story...
"[The gold purchase] was a way to secure the pension fund's assets value. If we win our appeal against the instruction of the DNB [to sell] we can claim compensation for any loss we might incur."
Did you get that? A pension fund obliged by law to defend its members' savings – and doing a very good job of it by all accounts – bought gold to secure its asset value. It's seeking a legal decision that means it can then sue the central bank if selling down those gold holdings means the fund loses value overall.
"The decision to raise the gold allocation [doubling it in October 2009, while selling off the fund's 17% position in equities] was made in the expectation that the stock market's rise would not be sustainable and a considerable downward correction was likely to follow."
Which has paid off handsomely regardless of the broader stock-market's continued gains, especially in terms of the faltering Euro which denominates pretty much all of SPVG's other investments.
 
Zero-yielding gold might look worthless to retirees and pension savers, in short. But if you're entirely reliant on fixed-income debt – as the SPVG has become, matching its liabilities to its assets to make sure it can pay its members their pensions – then it's all-the-more important to insure your savings against inflation, currency loss and default.
 
At least, that's what a glass-company's pension fund in Holland believes, holding pretty much only AAA-rated government debt and stateless, debt-free gold bullion as a warranty on its members savings.

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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