The Case for Gold

Gold, in Australian dollars (AUD), delivered positive returns in 2022 and so far in 2023. And it has attracted attention: while global central banks bought a record level of gold in 2022, Australia’s sovereign wealth fund also added gold to its portfolio.

With the rapid growth in funding ratios over the past year, an increasing number of UK defined benefit (DB) pension schemes have been contemplating their investment approach for the endgame – the point at which a plan moves from being underfunded to being fully funded or even having a surplus.

While major Japanese and global assets have witnessed declines in H1, gold has delivered a 19% return in local currency amid a combination of rising inflation, geopolitical risks and a weaker yen.

The traditional Defined Contribution (DC) investment portfolio made up of equities and bonds has worked well for investors for a long time. For much of the last 15 years, the environment that has afforded this success has been driven by central bank actions such as ultra-low interest rates and quantitative easing.

Geopolitical uncertainty, inflationary concerns and rising interest rates in key markets have impacted global financial markets in the first quarter. 

The current global economic landscape indicates improving economic conditions, higher inflation and rates expectations, as well as commodity supply shortages which are likely to support commodity performance.

In recent years, buy-and-hold investors such as pension funds, endowments, insurance companies, and sovereign wealth funds (SWFs) have gradually increased their investments in alternative assets to diversify their portfolios and boost returns. ‘Alternatives’ make up 23% of SWF portfolios and 24% of global pension funds, up from single digits in 2000.