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7 May 2021

The relevance of gold as a strategic asset UK edition

Technical News May 2021. The World Gold Council is the market development organisation for the gold industry. Their role is to stimulate and sustain demand for gold, provide industry leadership and be the global authority on the gold market. They promote gold as a mainstream asset class by enhancing institutional and retail investor understanding of gold as part of a balanced portfolio. They support clear and consistent global standard setting on all issues including ESG to reinforce integrity, transparency and trust across the value chain. They also strive to develop a fair, effective and accessible gold market by engaging global governments and policy makers.

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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Notes/Sources

Explore the relevance of gold as a strategic asset by clicking on the following supplement published by The World Gold Council. For further details contact Claire Lincoln.

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Last update: 11 May 2021

World Gold Council

Pensions Client Relationship Manager – Home/ Office based

Salary: £50000 - £55000 pa

Location: London, Liverpool, Glasgow, Edinburgh, West Sussex, Exeter, Manchester

Client Success Director

Salary: £65000 - £80000 pa

Location: London

Pensions Technician

Salary: £26000 - £30000 pa

Location: County Durham