Terry Arthur, an independent actuary, yesterday called gold 'the supreme inflation hedge and the supreme international asset all rolled into one'.
Speaking to 100 fund managers at a World Gold Council seminar, Mr Arthur made a case for gold as an appropriate asset to match pension scheme liabilities. Looking at traditional assets, he said earnings per share in equities had failed to keep up with inflation and wages.
British pension funds invest up to 80 per cent of their assets in shares, which he said was too high. They should put up to 5 per cent of their investment into gold and 10 per cent into commodities generally, he suggested.
'The most direct inflation hedges are those commodities which actually make up the retail price index,' Mr Arthur said. 'Many basic commodities, like gold, and commodity indices can be purchased in the forward markets and continually rolled over to provide the required long-term link.'
Goldman Sachs, the US investment house, and the US stockbroker Frank Russell have recently recommended that a portion of institutional portfolios be devoted to commodities. Other studies conducted in the past few years have found that adding commodities to portfolios has improved returns.
British pension funds have only ever invested in gold through mining shares except for an attempt by two fund managers in the 1970s, which ended in huge losses.
Widespread disinvestment in South Africa because of apartheid in the early 1980s put fund managers further off gold despite it soaring to dollars 800 an ounce.
But it will take more than a surge in gold prices to persuade pension fund managers, renowned for their conservative approach, to consider gold again.
John Stubbs, head of UK equities at Postel, the Post Office pension fund, says gold is unattractive and unsuitable for pension funds. The funds get tax advantages by investing in UK equities and gilts but none for gold. Gold does not earn interest like other investments, and pension funds need that income, another drawback.
'It is not an area we are planning to go into at the present time,' he said. He doubts that even a bull market would change Postel's view.
London gold bullion was fixed yesterday at dollars 366.40 an ounce, well down from the August peak of more than dollars 400.
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