Pension Funds Flock to Gold as Bond Hedge Weakens

Pension funds are increasingly turning to gold as a hedge against inflation and market volatility. The World Gold Council reports that some pension funds have maintained a position in gold since 2020, with allocations ranging from 2% to 5%. This trend is driven by concerns over geopolitical tensions, inflation shocks, and the reduced diversification benefits of bonds.

The council notes that government bonds have traditionally provided diversification when risk assets come under pressure. However, the correlation between bonds and equities has increased significantly in recent years. U.S. Treasuries have remained positively correlated with equities since 2022, while gold has shown a more stable correlation profile.

One pension fund, Pensioenfonds PDN in the Netherlands, began buying gold in October 2020 and completed purchases in April 2021 to reach a 5% allocation. The investment was funded by cutting government-bond exposure by 10%. Half of the proceeds went into physical gold, while the remainder went into equities, real estate, and infrastructure.