Ohio's $16 billion Police & Fire Pension Fund is following in the steps of Warren Buffett and making a big statement about owning gold. It has approved a 5% allocation to gold to help diversify the fund's portfolio and to "hedge against the risk of inflation" according to Bloomberg.
The change was approved as "the first step" in an ongoing asset review that was presented to the fund's board on August 26.
The fund was following the advice of its investment consultant, Wilshire Assocaites, in adding the gold allocation, according to Pensions & Investments. Additionally, the fund plans on adding the gold stake by borrowing; the fund is reportedly increasing its leverage from 20% to 25% to make the change.
"No new manager has been selected, and there currently is no timeline for implementing this change," P&I reported.
Buffett's move into gold has opened the door for fund managers to follow suit. Except, instead of playing in a hundred trillion dollar equity market, they are dealing with barely over $1 trillion in investable gold. This means that if the fund becomes a trend setter in the industry and if others follow suit, look out above.
Peter Schiff said on a recent podcast: "Warren Buffett seems to have a very good understanding of inflation. He doesn't regard it as rising prices, he regards it as money supply. He's talked about inflation as a hidden tax on savers. As a cruel tax. He understands the loss of value of money. He basically says that that's inflation: the erosion of purchasing power of money. I think Buffett now has a much darker outlook on inflation than he did in the past."
"Buffett is now of the opinion that inflation is going to be so high that gold is going to be particularly important to own, rather than just owning businesses," he says.
You can listen to Schiff's comments here:
If the inflation message starts to become clear to pension funds and main street asset managers, we could see a major sea change in psychology regarding gold as an investment.
Additionally, Rick Rule recently commented about exactly how under-owned gold was in the U.S.: "A major bank study, which I read, and I’ve quoted it before in interviews with you, says that between 0.3%-0.5% of savings and investment assets in the United States involve precious metals or precious metals securities."
He continued: "That may have gone up because the denominator has declined the value, the Dow is an example, but the three decade-long mean was between 1.5%-2%. So gold is still very broadly under-owned, and I would suggest it’s even under-owned among people who are listening to this broadcast."
But in plain English, another way to say it is that there simply isn't enough gold available in the world for every pension fund to make the same 5% allocation.
Barbaric relic, pet rock, public enemy #1> Gold has begun a major transition> Buffett is attracted to enormous cash flow & dividend potential of Barrick, then Reserve Bank of India signals higher allocation, and now OHIO Police & Fire Pension approves a 5% allocation.— Garic Moran (@GaricMoran) August 29, 2020