FXT Financial Focus (Asia-Pacific 09/07)Global Asset Managers Increase Gold Exposure

After gold pulled back sharply from its early-year highs, major global asset managers have remained constructive and used the correction to rebuild positions. More than a dozen firms surveyed, managing around $27 trillion in assets, including Allianz, Pictet Asset Management, Robeco, Fidelity International and BNP Paribas Asset Management, have recently increased or maintained sizable gold allocations. Allianz expects gold could reach $5,000 per ounce by year-end. Many institutions believe speculative excess has largely been cleared, making gold attractive again for strategic allocation.

The renewed buying is not simply driven by lower prices. Gold‘s role as a portfolio hedge is also recovering. After approaching $5,600 per ounce in January, gold fell toward $4,000 in June. As speculative positioning unwound, some funds that had previously reduced exposure began returning. BNP Paribas Asset Management has also noted that gold’s correlation with equities and other risk assets has declined, improving its diversification value.

World Gold Council data showed that official-sector net gold purchases reached 289 tonnes in the second quarter, the highest level ever recorded for the period. Robeco also sees accelerating central-bank demand as an important reason for rebuilding exposure. Meanwhile, fund net-long positions in gold climbed to their highest level of the year in the week ended August 25, indicating renewed institutional inflows and a broader demand base beyond short-term speculation.

Gold still faces near-term pressure from interest rates. Fed Chair Kevin Warsh stressed at Jackson Hole that US inflation has yet to return sustainably to the 2% target, prompting markets to raise expectations for further tightening while Treasury yields remained elevated. Since gold offers no interest income, higher rates increase its opportunity cost, leaving resistance around $4,600. Some institutions have already added exposure, but further buying will depend partly on the Feds next policy moves.

Beyond near-term rates, long-term investors are increasingly focused on US fiscal conditions and changes in global asset allocation. Bridgewater founder Ray Dalio recently suggested reducing bond exposure and allocating as much as 15% of portfolios to gold as a hedge against US debt risks. With long-term Treasury yields elevated and fiscal concerns growing, gold is increasingly viewed not only as an inflation hedge but also as protection against fiscal risks, geopolitical tensions and financial-market volatility.

Gold remains underrepresented in many Western portfolios, particularly after years of strong equity performance left investors heavily concentrated in stocks and bonds. If diversification continues, even a modest increase in gold allocations could generate substantial incremental demand. Combined with persistent central-bank purchases, this could strengthen golds long-term demand base and encourage further institutional participation.

From FXTs perspective, the key development is the gradual shift in gold demand from short-term speculation toward long-term strategic allocation. Tight Fed policy and elevated interest rates may continue to limit near-term upside, but central-bank buying, portfolio diversification, fiscal risks and geopolitical uncertainty remain supportive. As long as these structural drivers persist, institutions are likely to keep adding gold on pullbacks, reinforcing its role as both a portfolio hedge and store of value.