Pension funds like all other investors face a raft of challenges ahead, forcing a possible shift in both their investment approach and asset allocation strategies. To navigate the new financial landscape ahead, both traditional and alternative investments should be considered to help balance risk, return and impact. Gold’s unique characteristics, which help set it apart from other mainstream assets, could bring multiple benefits to a pension fund portfolio; not only helping to manage overall risk but as a means of diversifying returns over the long term.

Gold has emotional, cultural and financial value. Different people across the globe buy gold for different reasons, often influenced by a range of national socio-cultural factors, local market conditions and wider macro-economic drivers. Gold benefits from diverse sources of demand: as an investment, a reserve asset, jewellery, and a technology component. It is highly liquid, no one’s liability, carries no credit risk, and is scarce, historically preserving its value over time.

2020 posed unprecedented challenges for investors as the first global pandemic in a century ravaged the world economically and socially. COVID-19 significantly increased uncertainty by compounding existing risks and creating new ones. The rollout of new vaccines at the end of last year fuelled optimism that the worst was over, yet the pandemic and the ensuing policy response from governments will likely have unintended consequences for, and create structural changes to, asset allocation strategies.

Global central banks have effectively taken interest rates to zero, driving nearly all sovereign debt to negative real yields. With less opportunity for yield across fixed income assets, especially those of shorter duration or higher quality, investors will likely continue to shift exposure to riskier assets. This has pushed many global stock markets to extreme levels on numerous valuation metrics and importantly has also served to increase the risk profile of most investment portfolios.

We believe these actions, in combination with the current environment have made gold increasingly relevant as a strategic asset. Not only could investors benefit from gold’s role as a diversifier amid ballooning budget deficits, inflationary pressures, and potential market corrections from already high equity valuations, but they may also see additional support as gold consumption will likely benefit from the nascent economic recovery, especially in emerging markets.

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