DNB must compensate pension fund for gold sale

The Dutch Central Bank (DNB) must compensation of €4.8 million to the Pensioenfonds Vereenigde Glasfabrieken, the court of Rotterdam ruled. The pension fund was declared by the central bank in October 2009 because it had invested 12% of its assets under management in physical gold. DNB considered this percentage to be riskily high and urged the pension fund to reduce its exposure to physical gold in its portfolio to around 1 to 3 percent.

The pension fund had to pay at a very unfortunate time Selling gold, as the gold price would rise to a record level of €1,380 per troy ounce in the three years that followed.  That was almost twice as much as the price at which the pension fund had to sell the gold in 2009.

Claim

The pension fund immediately lodged an objection against the decision of the Dutch Central Bank and was subsequently vindicated by both the District Court and the Board of Appeal. The claim for damages filed by the pension fund with the Dutch Central Bank was upheld by the court in Rotterdam. This means that the Pensioenfonds Vereenigde Glasfabrieken will receive compensation of €4.8 million for the missed return on the investment in gold.

Although pension funds invest with a long-term vision, they generally do little with gold. Pension funds have become reluctant to Buy gold by the dispute between the Dutch Central Bank and the pension fund in question, which had converted part of its assets into physical gold.

Now that the court has once again ruled in favor of the pension fund, the way is open for institutional investors to buy physical gold. Whether they will do so remains to be seen, because gold does not generate a flow of money that can be paid out to pensioners. The added value of physical gold in the portfolio is mainly an insurance policy against the failure of the money system, a risk that pension funds apparently deal with differently than central banks. They do have a considerable supply of physical gold.