Pension Funds Start Looking to Gold to Avert Disaster / Commodities / Gold & Silver 2020

Public and private pensionplans face a dual crisis.

The first and most obviousthreat 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 shapefinancially than others. But all pension plans will have to reckon with asecond huge challenge going forward.

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

FedDeclares War on Savers

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

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

But what happens when thegreat 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 yieldelsewhere by owning dividend-paying stocks. But an all-equity portfolio wouldbe too volatile for their conservative investing mandate. Even the highestquality stocks got hammered during the virus-induced economic lockdown hysteriathis spring.

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

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

PensionPlans CAN Hold Gold – But Only These Two Do

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

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

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

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

Others have been urged todo 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 reservefunds.

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

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

Unfortunately, preciousmetals assets represent only about 0.5% of all savings and investments in theUnited 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 thefinancial system.

The bias against gold runsdeep, 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 thatgold is too risky and too volatile.”

But Parks says the oppositeis 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 ofinterest with pensioners, who are by law the sole plan beneficiaries. It is ascandal how pension trustees have been misled.”

A SecureRetirement Requires Physical Backup

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

The agency tasked withbacking up pension programs, the Pension Benefit Guaranty Corporation, isitself underfunded and could quickly become insolvent in the event of a rise inpension failures.

Of course, the risk of apension program failing to keep pensioners ahead of inflation is closer to acertainty.

Conventional institutionalasset allocation models will be exposed as deficient and even dangerous whentheir 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 againsta regime of currency depreciation and an environment of negative real returnson interest-bearing paper is physical precious metals.

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

We would add that if youwant the potential for some spectacular real gains in retirement above andbeyond what gold delivers, you better own some physicalsilver as well.

Stefan Gleason isPresident of Money Metals Exchange, the national precious metals company named 2015"Dealer of the Year" in the United States by an independent globalratings group. A graduate of the University of Florida, Gleason is a seasonedbusiness 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 asthe 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.

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