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Inflation may moderate, but pension funds aren't taking any chances as they increase their exposure to gold and commodities - Ortec Finance

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(Kitco News) - Inflation in the U.S. is expected to continue to moderate. However, pension funds are still not taking any chances as they increase their exposure to gold, according to the latest report from one global risk management firm.

In a report published Thursday, analysts at Ortec Finance said that a study of U.S. public sector plan professionals, who collectively manage more than $1.3 trillion, said they were 90% confident that inflation is declining.

Globally, more than half of public pension fund managers, with total assets under management of more than $3 trillion, said they expect inflation to be 3.3% or lower within a year, which is down sharply from last year's survey, where inflation was expected to be around 6.4%. The survey showed that only 10% of global money managers expect inflation to be over 6%.

The survey results come a week after the U.S. Labor Department said its Consumer Price Index rose less than expected in the last 12 months to 5%. While fund managers are optimistic that inflation will continue to trend lower from last-years 40-year highs, analysts at Ortec said that they still aren't taking any chances as they increase their exposure to gold and other commodities.

"There is genuine optimism that lower inflation will become well-established with very few managers expecting it to be as high as it currently is within a year or two," said Marnix Engels, managing director of Pension Strategy at Ortec, in the report.

"Many US public sector pension plans have acted to manage their balance sheet effectively in order to achieve long-term objectives while dealing with the short-term risk from inflation. Strategic asset allocation decisions are however, becoming increasingly complex as a result of the ever-growing number of asset classes and investment strategies, and the unique risks associated with them," he added.

According to the research, about 70% of fund managers surveyed said they planned to increase their exposure to broad commodities; 40% specifically said they would increase their allocation to gold; in other alternative assets, 52% of managers said they would increase their allocations to infrastructure. Meanwhile, 42% said they increase increased their exposure to inflation-protected bonds.

Commodity analysts have said that hedge fund interest in gold as a strategic asset should continue to support the precious metal above $2,000 and potentially push prices to all-time highs. Analysts note that their bullish positioning in gold is still relatively low compared to last year when it made its first attempt at all-time highs.

Sticky UK inflation raises fear that the Fed is not done yet, keeps gold down

The latest data from the Commodity Future Trading Commission shows that money managers are net long gold by 104,000 contracts, about 27% from the 2022 peak, the last time when prices were above $2,000 an ounce.

Analysts note that holding in gold-backed exchange-traded products also shows that investors are generally underinvested in gold compared to its previous run. In March, global gold-backed ETFs saw their first net inflows in 10 months.

Looking at the World's biggest gold ETF SPDR Gold Shares (NYSE: GLD), it currently holds 926.57 tonnes of gold, down compared to the nearly 1,100 tonnes held in March 2022.

Ortec Finance is a leading global provider of risk and returns management solutions for pension funds and other institutions, as it creates risk models to help them achieve their investment goals.

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