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How much gold is too much gold if
you're a fixed-income investor...?
GOLD DOESN'T pay any income, of course. Which is why
retirees and pensioners should hate it.
But since gold cannot go bust – and because its tight supply
typically finds strong demand when cash loses value to inflation in the cost-of-living
– gold in fact makes the perfect insurance for fixed-income investments
like corporate or government bonds. At least, that's what €39 million
gold investor Stichting Pensioenfonds
Vereenigde Glasfabrieken
says.
Crazy name, crazy Dutch fund managers! SPVG holds a massive 13% of its
assets in gold, running a total €300m
($400m) to try and ensure a pension for workers past and present at the
Schiedam, Netherlands glass manufacturer.
That compares with the typical 5% or 10% allocation which even the
friendliest gold-friendly advisors might suggest. And seeing how the average
European pension fund holds 2.7% in ALL commodities, never mind just gold, Holland's
central bank, De Nederlandsche Bank (DNB), thinks
SPVG is nuts. And so – as its regulator – it's given the fund two
months to slash its gold position to below 3% of assets.
Good call? Not if you're holding a full 85% of your savings in
fixed-income bonds, all denominated in the Euro, and primarily issued by the
Dutch or German governments, says SPVG in a statement. Speaking to Investment & Pensions Europe, board member Rob Daamen picks up the story...
"[The gold purchase] was a way to secure the pension fund's
assets value. If we win our appeal against the instruction of the DNB [to
sell] we can claim compensation for any loss we might incur."
Did you get that? A pension fund obliged by law to defend its members'
savings – and doing a very good job of it by all accounts – bought gold to secure its asset value. It's
seeking a legal decision that means it can then sue the central bank if selling
down those gold holdings means the fund loses value overall.
"The decision to raise the gold allocation [doubling it in
October 2009, while selling off the fund's 17% position in equities] was made
in the expectation that the stock market's rise would not be sustainable and
a considerable downward correction was likely to follow." Which has paid
off handsomely regardless of the broader stock-market's continued gains,
especially in terms of the faltering Euro which denominates pretty much all
of SPVG's other investments.
Zero-yielding gold might look worthless to retirees and pension savers,
in short. But if you're entirely reliant on fixed-income debt – as the
SPVG has become, matching its liabilities to its assets to make sure it can
pay its members their pensions – then it's
all-the-more important to insure your savings against inflation, currency
loss and default.
At least, that 's what a glass-company's
pension fund in Holland believes, holding pretty much only AAA-rated
government debt and stateless, debt-free gold
bullion as a warranty on its members savings.
Adrian Ash
Head of
Research
Bullionvault.com
You can also Receive your first gram of Gold free by opening an
account with Bullion Vault : Click here.
City correspondent for The Daily Reckoning in London, Adrian Ash is
head of research at BullionVault.com – giving you direct access to investment
gold, vaulted in Zurich, on $3 spreads and 0.8% dealing fees.
Please Note: This article is
to inform your thinking, not lead it. Only you can decide the best place for
your money, and any decision you make will put your money at risk.
Information or data included here may have already been overtaken by events
– and must be verified elsewhere – should you choose to act on
it.
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