Gold is still an “under-owned asset” with just 0.7 per cent of global assets under management held as gold or gold equities while the inflation adjusted gold price is still 40 per cent below its previous peak.
Pension funds will increase gold holdings to acquire “financial insurance,” pushing prices higher as currencies drop, according to Shayne McGuire, director of global research at the Teacher Retirement System of Texas.
“I think the largest institutions like our own are realizing that we barely own any,” McGuire said in an interview in Hong Kong. “The same thing applies to most of the pension funds which manage trillions of dollars in world wealth.”
Both Hedge Funds and Central Banks are moving into gold in a major way.
Credit Suisse Bank says there is a need and desire for central banks to increase their gold holdings as a proportion of foreign exchange reserves. China and Japan together control 42 per cent of global foreign exchange reserves but hold only 2 per cent of their reserves as gold. If the Bank of Japan and Bank of China wanted to hold say 10 per cent of their reserves in gold (compared with 70 per cent in Europe and 80 per cent in the US), they would have to buy around $250bn worth of gold, more than double the world’s annual gold production. The price obviously would rocket upwards.