The New Jersey Division of Investment is actively investing in gold to fund the state's retirement plans for employees.
In doing so, it joins the Teacher Retirement System of Texas in shunning conventional wisdom that buying the precious metal is a risky proposition.
Investment officials at the $67.3 billion New Jersey division purchased $9.4 million of the SPDR Gold Trust exchange-traded fund between Dec 1, 2009, and Feb 28, according to state investment reports. In total, New Jersey had $93 million invested in gold as of Feb. 28; its initial commitment of $10 million was made a year earlier.
“Our investment staff believes gold is a valuable addition to a diversified portfolio,” said Andy Pratt, a spokesman for the New Jersey Division of Investment, Trenton.
Mr. Pratt said gold can act as a financial hedge for the state's pension funds during inflationary periods or during times of uncertainty in the stock market.
Critics, however, say direct gold investments by institutional investors are very dicey because it's hard to predict gold pricing.
Eric Petroff, director of research for Wurts & Associates, Seattle, said while the consulting firm sees gold as part of a diversified commodity exposure, it does not recommend substantive direct holdings.
“The problem with gold is there is no way to fundamentally value it,” Mr. Petroff said. “So there is no way to formulate a well-reasoned return expectation. Therefore, holding gold is implicitly a bet on the psychological desire of investors to hold this asset.”
China's sovereign wealth fund, China Investment Corp., Beijing, also has gotten gold fever. An SEC filing dated Feb. 5 shows the fund held a 1.45 million-share stake in the SPDR Gold Trust. The shares were selling at $108.95 a share as of March 31.
While the dollars invested represent only a small portion of the two state retirement funds, they're significant because pension plans have been extremely reluctant to make direct investments in gold. The investments are also more than three times larger than previous forays by pension plans into physical gold, according to records from the Securities and Exchange Commission.
More typically, pension funds have invested in gold as part of a broad commodities investment vehicle or in mining companies.
Over the past few years, however, the Texas Teachers pension plan has invested smaller portions of its money, less than $10 million, in the SPDR Gold Trust. Another smaller player, the Pennsylvania Public School Employees' Retirement System, Harrisburg, has traded in the SPDR Gold Trust in amounts less than $25 million. As of Dec. 31, the system had $5.5 million in the trust, according to SEC documents.