Global Managers Rebuild Gold Holdings Amid Geopolitical Risks

Despite concerns that the U.S. Federal Reserve will keep monetary tightening in place for longer, global large asset managers are rebuilding the gold holdings they had cut.

In Korea, as money flows into gold exchange-traded funds (ETFs) and even the Bank of Korea moves into gold for the first time in 13 years, market interest in gold demand is growing.

Global asset managers are increasing their gold weight again as gold prices go through a correction. Bloomberg recently interviewed global major managers overseeing a total of $27 trillion in assets and found that firms including Amundi, Europe's largest asset manager, as well as Pictet, Robeco, and Fidelity International have either rebuilt the gold positions they cut early this year or are maintaining a bullish outlook.

Amundi's fund managers built long positions, projecting gold prices will recover to about $5,000 per ounce by year-end. While prolonged Fed tightening and high real interest rates could weigh on gold, they judge that geopolitical risks, demand to diversify away from dollar assets, and Central Bank gold purchases can support prices over the longer term.

Gold is a non-yielding asset that pays no interest, so its investment appeal typically falls when rates rise. The higher real interest rates go, the greater the opportunity cost of holding gold. The fact that global institutions are buying gold again during the price correction suggests they view structural demand, such as geopolitical risk and diversifying foreign exchange reserves, as more important than short-term rate variables.