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Australia's sovereign wealth fund, which manages $130 billion in assets, has gold on its portfolio for the first time added. The fund says it has converted a few percent of its assets into precious metals to better arm itself against high inflation and geopolitical uncertainty. According to fund manager Raphael Arndt, the decision to buy gold was also motivated by the poor performance on the bond portfolio. Normally, bonds are a safe haven when stock prices are falling, but this year both stock and bond markets went Down hard. As a result, gold has become an attractive alternative to reduce the downside risk of the portfolio. Will more funds follow suit?
In an interview with Bloomberg, fund manager Arndt says he is factoring in a scenario of high inflation combined with a stagnant economy. Stagflation, just like in the 1970s. Under these circumstances, equity yields are low, and bonds offer less protection than usual. This is despite the fact that precious metals such as gold and silver are performing well. Commodities also achieved high returns at the time, as investors preferred tangible things to guard against high inflation.
Many mutual funds have had a difficult year, as both stocks and bonds have fallen. Due to the rise in interest rates, not only the value of shares, but also that of bonds in the portfolio decreased. This is despite the fact that, historically, stocks and bonds have often moved in opposite directions, and together they have created balance in the portfolio. This new reality, according to Arndt, requires an alternative investment strategy: "It no longer makes sense to continue to use the same strategy with regard to setting up the portfolio." As a result, the Australian sovereign wealth fund is now investing more in things that can protect against rising prices, including precious metals.
This is not the first time that a large mutual fund has added gold to its portfolio. In May last year, the pension fund of chemical group DSM decided to a few hundred million euros invest in gold. And in August last year, the American software company bought Palantir for $51 million worth of physical gold. So there are more examples to be found, although the majority of investment funds still have no or almost no gold in their portfolio. And if investment funds already Buy gold, they often do so through financial products such as ETFs. And those funds saw their gold stocks this year descend as a result of the increased interest rates. For many investment funds, gold is not yet a permanent part of the investment mix.
The prospect of a new recession could give more mutual funds the idea of adding gold to the portfolio. As we said last summer, Wrote gold has already proven its worth in times of crisis and during high inflation. And even though there is no direct correlation between the price of gold and inflation in the short term, in the long run the price of the precious metal appears to rise in line with the money supply. This is how the price of gold has been since 1971 increased by an average of 8.1% per year. For an investment with no counterparty risk, that's not a bad return. And when we see that both Central Banks if Individuals If you buy a lot of gold, investment funds that want to protect themselves against inflation cannot be left behind.
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On behalf of Holland Gold, Paul Buitink and Joris Beemsterboer interview various economists and experts in the field of macroeconomics. The aim of the podcast is to provide the viewer with a better picture and guidance in an increasingly rapidly changing macroeconomic and monetary landscape. Click here to subscribe.
