Short and Sweet

What if pension funds put 5%of their total asset value into gold?

Last August the Ohio Police and Fire Pension Fund (OP&F) announced it would allocate 5% of its nearly $16 billion investment portfolio to gold as a “strong diversifier” and “effective hedge against inflation.” A 5% allocation to gold for the fund, if achieved, would amount to roughly $800 million at $2,000 per ounce – about 400,000 troy ounces or 12.5 metric tonnes. Even though that commitment amounts to a formidable boost for the annual demand table, OP&F is just a small slice of the $22.4 trillion U.S. pension fund universe.

Pension fund total assets
(United States, 2002-2018)

bar chart showing pension fund assets in the United StatesChart courtesy of • • • Click to enlarge

If by some stretch of the financial imagination, U.S.-based pension funds were to follow the OP&F’s example and allocate 5% to gold across the boards, over $1.12 trillion would suddenly enter the gold market – the equivalent of almost 17,500 metric tonnes at current prices and an amount equal to half central banks’ total gold reserves. That is not a likely outcome but we throw the number out there just to offer an idea of pension funds’ purchasing power. Globally, pension funds have roughly $35 trillion under management. If only 1% were allocated, it would translate to almost 5,5oo tonnes – still a significant number.

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