For investors with long time horizons, like many institutions, gold’s differentiated risk-return characteristics have enabled it to maintain its real value across disparate macroeconomic environments and through numerous existential disruptions to markets, a feat we consider truly rare.
Institutional investors seeking the potential hedging features of gold may find different levels of exposure and different asset mixes suitable, depending on their risk-return objectives and macroeconomic and market expectations.
First Eagle views bullion and gold-related equities as complementary methods to gaining gold exposure. We actively but patiently manage our relative allocations to gold bullion and gold stocks from the bottom up.
- Given the inherent uncertainty of the gold market and the many complex factors that drive its movement, we believe a strategic allocation to gold is a compelling way to gain exposure to its characteristics as a potential hedge against adverse market conditions.
Many of the diversified equity portfolios managed by First Eagle maintain a strategic allocation to gold and gold-related securities.
Driven by our belief that the permanent impairment of capital is the greatest risk facing investors over the long term, gold serves as a long-duration potential hedge that we believe can provide these portfolios with a source of resilience across a wide variety of adverse circumstances— including both inflationary and deflationary environments as well as equity bear markets and sharp near-term selloffs—while also supporting real purchasing power across market cycles.
There are signs that institutional investors increasingly are looking toward gold to help meet a variety of portfolio needs, as years of very low interest rates have prompted the consideration of less-traditional pathways to desired goals. For example, a recent survey of institutional investors performed by Coalition Greenwich (fka Greenwich Associates) and the World Gold Council found that about 20% of respondents had specific gold allocations in their portfolios, and almost 40% of these anticipated increasing their allocations over the next three years. Among those institutions without exposure to gold but who have established a target or considered an investment, 40% planned to make an allocation.1
Our conversations with institutional clients and consultants about gold have revealed a similar swell of interest. In this paper, we respond to some of the questions we are asked most frequently when discussing gold and its application in institutional portfolios.
1. “Rethink, Rebalance, Reset: Institutional Portfolio Strategies for the Post-Pandemic Period,” Coalition Greenwich, World Gold Council (3Q21).
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