Gold enters the pension portfolio: Why global funds are increasing allocations to the precious metal

Gold is gaining a larger role in the portfolios of some pension funds as investors reassess traditional diversification strategies amid geopolitical tensions, inflation shocks and changing relationships between equities and bonds.

A World Gold Council report examining pension-fund case studies shows that institutional investors are using gold for reasons that go beyond expectations of rising prices. The asset is being considered for portfolio diversification, inflation-risk management, liquidity and improving risk-adjusted returns at the portfolio level.

The shift comes as the diversification role of government bonds faces greater scrutiny. The report notes that the correlation between bonds and equities has increased significantly in recent years, raising questions about portfolio construction. Gold, by comparison, has historically displayed low-to-negative correlation with equities during periods of market stress.

Different funds, different approaches

Pensioenfonds PDN in the Netherlands provides one example. The €7.7 billion pension fund began investing in gold in October 2020 and completed purchases in April 2021 to reach a 5% target allocation. The decision followed an asset-liability management study that identified diversification benefits and the potential to reduce portfolio risk without lowering expected returns.

PDN funded the move by reducing its government-bond exposure by 10%. Half of the proceeds went into gold, while the remainder was allocated to equities, real estate and infrastructure.

In the US, the Fairfax County Employee Retirement Systems, with about US$6.2 billion in assets, has a 3% allocation to gold through futures. Its investment in gold began in 2020 amid concerns about inflation following the pandemic and monetary stimulus. The fund also cites gold’s diversification properties during periods of market stress.

The Now: Pensions Master Trust in the UK made its first gold investment in April 2021. Gold represents around 2% of total assets and is accessed through futures within its alternatives allocation. The fund has around 10% in alternatives overall, including gold, industrial metals, carbon credits and high-yield assets.

Meanwhile, Australia’s NGS Super has maintained a 3% gold allocation since June 2020, as part of a broader strategy combining equities with government bonds, alternative assets and gold to manage different market environments. The fund says gold has historically performed well during market uncertainty, inflation and currency debasement.

The case studies underline that there is no single pension-fund model for gold. Allocations and implementation methods vary according to each fund’s objectives, governance framework, risk budget and investment philosophy. The report highlights dedicated strategic allocations, real-asset or inflation-sensitive buckets and futures-based implementation as different ways pension funds have incorporated the metal.

For pension investors, therefore, gold is being positioned within portfolio construction rather than treated simply as a standalone commodity exposure. The case studies illustrate how funds are adapting allocations to their funding positions, governance structures and risk considerations.