GLOBAL - Pension funds looking at investing in gold to hedge their portfolio against inflation would be better looking elsewhere, warns a report by Barclays Capital.
The fund manager believes that other assets, such as index-linked government bonds, are a much better inflation hedge and are also much less volatile than gold.
Barclays Capital bond strategist Mark Capleton said: “Gold may be an attractive inflation hedge in countries where there are few alternatives, but in developed economies, where inflation-linked bonds are issued by governments of high creditworthiness, gold seems a rather sub-optimal investment asset.”
Gold fund managers argue that the asset class can be used more as a diversifier than a protection against inflation. And they point to the precious metal’s rise in price to over US$300 an ounce during a period of market turbulence.
Merrill Lynch gold and general fund co-manager Evy Hambro said there has been a substantial rise in institutional investor interest.
“We have seen significant money flows coming into our funds from all types of investors. Gold has a negative correlation with the US dollar and a very low correlation with the MSCI World Index.”
UBS said pension funds’ attitudes to gold remain unfavourable due to fears of imbalances in the supply and demand status of the asset class.
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