Massive Gold Purchase Shocks Markets
Source: GoldAlert (4/18/11)
"Texas teachers pension fund places 5% of its assets in gold bullion."
Of note was the fact that the entity chose to place its investment not in gold ETFs, but rather in physical bullion due concerns regarding counter party risk. The request to take physical delivery from the COMEX also casts light on risks of a COMEX default since gold in COMEX vaults only amounts to approximately 5% of the outstanding gold contracts.
In the 1970s, asset allocation recommendations from U.S. brokerage houses and European banks routinely included a 5-10% allocation to gold. Despite gold's rise, the yellow metal still represents sub 1% of the global market cap of all assets. The news of this $1 billion purchase over the weekend sends another strong message about gold's re-emergence as a legitimate asset class.
It is somewhat ironic that these events are occurring after a nearly six-fold rise off gold's $250 per ounce low at the turn of the millennium. Investors will be watching closely to see if this move triggers similar reallocations among other large pension funds.