Pension Funds & Gold

During the 1980s and 1990s it was relatively easy for pension funds to meet their obligations due to strongly rising stock markets. And, since the year 2000 this has become much more difficult. Many pension funds are today underfunded, especially if realistic future return assumptions are used.
In the 2000s most stock markets have achieved marginal returns at best in nominal terms but with major volatility. In many countries the market is lower today than at the peak in 2000. In real terms measured against gold most markets have declined significantly in the last 10-12 years. In spite of the 2012 and 2013 relative strength of the S&P, the S&P is down 82% (April 2013) against gold since July 1999. As more money is printed to prop up a fragile financial system and rising government deficits, stock markets are likely to continue to decline substantially against gold. With negative interest rates in nominal terms in many countries or negative rates on an inflation adjusted basis, the debt securities market will not enhance pension fund returns. In addition, bond prices are at record levels and could decline substantially. Gold has no long term volatility correlation with any other asset class. Even a small investment of between 1.5-3.0%, depending on reporting currency, will consistently optimize a fund’s performance.

Retirement Funds & Gold

Due to the fragile state of the world economy, the risk to investors are major. Whether we get an deflationary implosion or what MAM thinks is more likely, hyperinflation, physical gold stored outside the banking system will protect pension funds against both scenarios.

The key is not whether MAM is correct or not in its assumptions. What is more important for retirement fund mangers is to protect against the eventuality of either scenario happening. To hold some physical gold would be a responsible insurance strategy against either event.

Portfolio Insurance

The difficulty for pension fund managers is to determine what percentage of physical gold should be held in the portfolio as insurance. There have been several studies made on this subject. Most of the studies indicate that at least a 2% allocation to physical gold improves the risk return tradeoff across a range of typical fixed income/equity
portfolios. This percentage increases depending on the portfolio mix, volatility and correlation. (“Gold in Asset Allocation” JP Morgan July 2012)

Counterparty risk

Evaluating counterparty risk should take a much higher priority in a fragile financial system. Is the bank or custodian  where assets are kept safe? Will bond issuers (whether government or private) repay their debts with stable or debased money?  What is the risk of default of bond issuers?

To protect counterparty risk is vital in a world where most governments are virtually bankrupt and can only survive with money printing and where the banking system only survives by valuing toxic assets at matrity value rather than market value.

Physical Gold is the only AAA risk!

Physical gold stored outside the banking system protects retirees against both a deflationary implosion and inflation/hyperinflation. It also gives investors “insurance” against counterparty risk. GoldSwitzerland can provide institutions with protection for a relevant percentage of their assets. GoldSwitzerland has a pricing offer for institutions that is competitive with any other method of acquiring gold. Please contact us for details.

Matterhorn Asset Management AG, Zurich
Tel: +41 44 213 62 45 - Fax: +41 43 456 97 11

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