Physical gold is a weighty investment—literally. A standard gold bar weighs almost 28 pounds, but its value continues to soar. Since the turn of the century, gold has dazzled investors with a nearly nine-fold increase, while the S&P 500 has risen 3.6 times. This year alone, gold has climbed 17.7% to $2,452 per ounce, keeping pace with the rallying stock index, which has increased by 18.1%. Despite its potential for volatility, gold remains a staple for many institutional investors due to its long-term performance and role as a hedge against economic uncertainties.
In turbulent times, gold thrives. It performs best when inflation is rising, the economy is declining, or geopolitical instability is present. For instance, between 2013 and 2019, gold prices dipped by one-third due to low inflation and strong economic growth. However, when the Federal Reserve started hiking interest rates in March 2022, gold prices slipped as higher rates attracted bond investors away from non-yielding assets like gold.
The tide turned again in October 2023 as talks of a potential recession and rate cuts emerged. Additionally, there was strong demand for gold from Chinese and emerging-market central banks looking to hedge against the strong dollar. George Milling-Stanley, chief gold strategist at State Street Global Advisors, emphasises the value of gold over the long term: “The longer the time horizon, the better,” he notes.
Institutional investors, including endowments and pension funds, hold gold in various forms: physical bars, shares of gold mining companies, and exchange-traded funds (ETFs). Prominent institutions like the University of Notre Dame, the University of West Virginia, the Ohio Public Employees Retirement System (OPERS), and the Teacher Retirement System of Texas are notable gold holders.
As of mid-July, OPERS held $106.4 million in gold investments, divided between $99.2 million in equity securities and $7.2 million in futures contracts. This represents a small fraction of OPERS’ $114 billion assets. Similarly, Texas Teachers’ gold investments total $13.6 million out of $186 billion in total assets. This figure has decreased from a higher amount after Texas Teachers sold $33 million in NovaGold Resources stock in the first quarter of this year.
Gold typically constitutes a minor part of institutional portfolios but is crucial in diversification and protection. Milling-Stanley of State Street advises clients to allocate between 2% and 5% of their holdings in gold, a higher percentage than what OPERS or Texas Teachers currently hold. Gold’s enduring appeal lies in its stability and historical significance. Gold, the oldest asset dating back to biblical times, has proven its worth as a reliable investment.
In conclusion, gold remains a valuable asset for institutional investors seeking diversification and stability. Its long-term performance and ability to hedge against economic uncertainties make it an enduring and essential component of a well-rounded investment portfolio. Whether held in physical form, mining stocks, or ETFs, gold’s staying power continues to attract investors looking for a reliable safeguard against market volatility.
