(Kitco News) The use of gold in institutional portfolios remains low. But most of those who already have exposure will either expand or keep existing allocations, according to the World Gold Council (WGC).
"Ownership of gold among the investors queried remains relatively low, with only about 15% of institutions having specific gold positions in their portfolios," the WGC said, citing a survey conducted by Coalition Greenwich between November 2021 and March 2022.
The survey polled 408 institutional investors to get a glimpse into how they view gold in the current macro environment.
Overall, the average allocation to gold was at a "healthy" 4%, the WGC noted. Also, the existing allocations are "sticky," meaning that most of those who have exposure to gold plan to either increase it or maintain it.
The top regions in terms of institutional gold allocation are Europe, the Middle East and Africa (EMEA) and Asia-Pacific (APAC). In both, 18% of respondents said they had gold allocations, which is higher than the average.
Another noteworthy discovery was that the vast majority of gold allocations have been strategic and have been held for more than three years.
"More than half of investors who hold gold expect the minimum holding period of their gold allocation to be more than three years, highlighting gold's significance in their long-term asset allocation strategy," the survey said.
The most popular way for institutions to get exposure is through gold ETFs, followed by gold mining securities. Only less than 18% of institutions chose to allocate via vaulted bullion.
The main reasons for owning gold include the need to diversify portfolios, concerns around inflation and interest rates, and risks surrounding economic growth.
"The ebb and flow between high prevailing price levels, uncertainty surrounding policy responses, and the threat of a recession continue to keep investors on edge, with institutions citing liquidity concerns, portfolio rebalancing, and interest rate projections as equally important drivers of short-term portfolio allocation decisions," the survey described.
Institutional preference for the precious metal stems from rising inflation concerns and the desire to diversify.
"Our interactions with institutional investors tell us that diversifying return drivers, dampening portfolio volatility, and inflation protection are among the main motivations for allocating outside of fixed income and equities," the WGC said. "When asked to name the primary role that gold plays in their portfolios, the vast majority of those who own gold ranked diversification and inflation-hedging above all other considerations."
On top of this, geopolitical tensions will keep institutions interested in gold, especially with the ongoing Russia-Ukraine war and heightened tensions between the US and China.
"The need for some downside protection in this challenging environment should sustain institutional demand for gold going forward," the WGC added.
