Hedge funds, pension funds, private banks, sovereign wealth funds, and others have all entered the commodity market in the interest of diversification and yield. Many commentators have assumed that central banks are also closely involved in this hunt and will turn to gold—the quasi-commodity they are most familiar with.
John Paulson's hedge fund's purchase of 31.5 million shares of the SPDR ETF gold, which is worth approximately $3.46 billion at the time of this writing and is equivalent to nearly 100 tonnes of metal, received a lot of attention, as did the launch of a separate gold-only fund that was reportedly funded with $250 million of his own money. However, Mike Avery, president, and chief investment officer of Waddell & Reed Financial, Inc., Kansas City, received significantly less attention. In an article published in the Wall Street Journal on October 26, 2009, Avery stated that approximately 15% of the $22 billion Asset Strategy funds were then invested in gold. This would have also given Waddell & Reed a position of roughly 100 tonnes of gold, based on gold price at the time.
Gold has been used as a currency since the time of King Croesus (roughly 550 BC), and it has a long-established intrinsic value that is only heightened when nations resort to problem-solving via printing presses at full speed, as Avery has noted separately. Waddell and its customers are concerned about the possibility of a government defaulting by devaluing its currency. Additionally, Waddell is aware that global monetary policy designed to encourage real output has limited efficacy and may not work this time around. Waddell says that owning gold doesn't mean being in mining stocks, futures, or even ETFs.It all comes down to having direct physical access to the bars underneath.
Avery decided that his customers would be much better served by having the metal on American soil, even though this could be accomplished by holding gold in London. Despite the fact that this may appear unusual in some ways, measures have been taken to ensure that this metal holding is liquid and can be sold when necessary.
The Teacher Retirement System of Texas (TRS) also received little attention when it announced on October 2, 2009, that "it has launched its first internally managed gold fund with $250 million in assets invested in precious metals mining stocks and exchange-traded funds (ETFs)."Since TRS manages approximately $100 billion in assets, it's possible that the media were under the impression that a small allocation of $250 million to gold was of little significance.
Nevertheless, I am aware that this is the first time a U.S. pension fund has launched a separate gold strategy in addition to a commodities strategy. To put it another way, this is the first time a pension fund has distinguished between gold and other commodities.
As a result, commentators should have been much more animated than they were in both instances. Despite the fact that TRS's investment might be viewed as relatively insignificant for such a large organization, both organizations believed that gold diversification was essential. I've only included businesses whose purchases have been made public; there are numerous others that have chosen not to.
While purchases by nations garner a lot of attention and can elicit long periods of media reflection, gold's future lies in the hands of a plethora of smaller businesses that choose to invest.
