Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Pension Funds Start Looking to Gold to Avert Disaster

Commodities / Gold & Silver 2020 Sep 06, 2020 - 06:42 PM GMT

By: MoneyMetals

Commodities

Public and private pension plans face a dual crisis.

The first and most obvious threat to pensioners is that defined-benefit vehicles are severely underfunded. By one estimate, pension systems taken as a whole are $638 billion in the red.

Some are in better shape financially than others. But all pension plans will have to reckon with a second huge challenge going forward.

Namely, they are already entirely unable to meet their stated return objectives by owning conventional “safe” interest-bearing instruments such as Treasury bonds.


Fed Declares War on Savers

The Federal Reserve has effectively declared war on savers by vowing to hold short-term interest rates near zero, likely for years to come. Longer-term bond yields also plummeted to record lows (below 1% for most maturities) this year.

An ultra-low interest rate environment is survivable for investors only so long as rates keep falling, thereby generating capital gains on bond holdings that supplement their diminutive coupon payments.

But what happens when the great bond bull market, which has been intact for nearly four decades, reverses? It will be a disaster for the assets of pension funds.

They could reach for yield elsewhere by owning dividend-paying stocks. But an all-equity portfolio would be too volatile for their conservative investing mandate. Even the highest quality stocks got hammered during the virus-induced economic lockdown hysteria this spring.

Market volatility combined with rising liabilities has driven a 6% increase in total adjusted pension debt this year, according to Moody’s Investor Services.

Meanwhile, the Federal Reserve recently announced that it would be changing its 2% inflation “target” to an “average.” That gives central bankers the policy leeway to begin pushing inflation well above 2% for an extended period. (And let’s not forget the Fed also uses the U.S. Government’s grossly understated inflation statistics.)

Pension Plans CAN Hold Gold – But Only These Two Do

How can pension funds obtain protection from this threat? They can own gold.

Last week, Ohio's $16 billion Police & Fire Pension Fund approved a 5% allocation to the monetary metal. This relatively small gold allocation provides at least some measure of portfolio diversification and could pay off in an outsized way if the gold market enters into a price-compounding mania phase.

Ohio will join Texas, through its Texas Teacher Retirement System, in having the only known public pension programs that hold precious metals.

Each fund appears to be targeting about $1 billion in gold holdings.

Others have been urged to do so, including by the Sound Money Defense League and Money Metals Exchange, whose Sound Money Index ranks all 50 states on whether they hold gold in their pension or reserve funds.

Wyoming, for example, considered and rejected the idea early last year when gold was trading at just $1,300/oz.

In a contentious Wyoming senate hearing in February 2019, the career deputy to the newly elected State Treasurer – having just turned in a staggering $300+ million loss on the state’s controversial investment in Third World debt – scoffed at gold while openly opposing his own boss who had just testified in favor of holding the monetary metal to protect the state.

Unfortunately, precious metals assets represent only about 0.5% of all savings and investments in the United States. The vast majority of pensioners and workers are thus vulnerable, like sitting ducks, to the threat of an inflation outbreak or a meltdown in the financial system.

The bias against gold runs deep, according to Larry Parks, Executive Director of the Foundation for the Advancement of Monetary Education (FAME): “Money managers, lawyers, actuaries, accountants, and other ‘fiduciaries’ recommend pension plans to not have gold in their portfolios. They say that gold is too risky and too volatile.”

But Parks says the opposite is true: “The real reason they try to discredit gold is that gold pays no fees, which is their principal concern. Thus, they have an inherent conflict of interest with pensioners, who are by law the sole plan beneficiaries. It is a scandal how pension trustees have been misled.”

A Secure Retirement Requires Physical Backup

Those who are now, or later will be, relying on a pension as their primary source of retirement income should develop a fail-safe backup plan.

The agency tasked with backing up pension programs, the Pension Benefit Guaranty Corporation, is itself underfunded and could quickly become insolvent in the event of a rise in pension failures.

Of course, the risk of a pension program failing to keep pensioners ahead of inflation is closer to a certainty.

Conventional institutional asset allocation models will be exposed as deficient and even dangerous when their stock and bond portfolios wilt under a period of possible stagflation – an economic trend that investors haven’t had to navigate since the late 1970s.

The ultimate hedge against a regime of currency depreciation and an environment of negative real returns on interest-bearing paper is physical precious metals.

As FAME’s Larry Parks advises, “If you want a secure retirement, you better own some physical gold.”

We would add that if you want the potential for some spectacular real gains in retirement above and beyond what gold delivers, you better own some physical silver as well.

Stefan Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2020 Stefan Gleason - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in