Pension funds might shun holding gold bullion, but they own in a big way stocks of gold producing companies mining the precious metal.
The stock of Barrick Gold Corp., which has the largest market capitalization of gold producers at $10.2 billion, is owned by many pension funds, both through actively managed equity portfolios and index funds.
Of the institutions owning Barrick stock, according to CDA Spectrum's Dec. 31 institutional stock holding report, the two largest positions were held by Twentieth Century Cos. with 9.78 million, or 2.8% of the total 353 million outstanding shares, and Fidelity Management & Research Co. with 9.44 million, or 2.7% of the outstanding shares.
Pension funds and other money managers with large positions include the Ohio Public Employees' Retirement System with 2 million shares; the New York State and Local Retirement Systems, 1.67 million shares; the Teachers Retirement System of Texas, 1.6 million; General Electric Co.'s GE Investment Corp. and GE Investment Management Inc., together, 724,116 shares; the U.S. Steel Carnegie Pension Trust, 527,000; the Ford Foundation, 400,000 shares; the College Retirement Equities Fund, 502,479; Florida Retirement System Trust, 434,500 shares; the Minnesota State Investment Board, 408,264; and the Wisconsin Investment Board, with 400,000 shares.
"Barrick is as close to an institutional stock as there is in the gold market," said John C. Madden, vice president and senior portfolio manager who runs the $200 million Keystone Precious Metals Holdings mutual fund of Keystone Investments Inc., Boston.
In all, five gold stocks are in the Standard & Poor's 500 Stock Index. They are Barrick, Echo Bay Mines Ltd., Homestake Mining Co., Newmont Mining Corp. and Placer Dome Inc.
"I'd say they have good institutional ownership," said Stephen Klein, investment officer, Standard & Poor's Corp., New York, through passive management in index funds and through active management.
Mr. Madden estimates gold company stocks have a market capitalization of $55 billion in all.
The S&P gold stock index returned 11.6% last year in terms of price appreciation alone, excluding dividends, Mr. Klein said. By contrast, the S&P 500 had a price appreciation of 34%.
Over the longer term "gold has underperformed the market," Mr. Klein added. In the past 14 years, the gold index appreciated in price nearly 500%, while the S&P 500 rose more than 750%, Mr. Klein added.
Mr. Madden said investors "tend to look at gold and gold stocks from the standpoint as insurance and the perceived idea that gold moves countercyclical to the market. So if the market appears unsteady they would move to gold" or gold stocks.
Holding the "metal is the most conservative way to own gold," said Mr. Madden. "Most people play the stocks because it is so much easier to trade, to buy and sell."
"Investors buy gold as a hedge against uncertainty in financial assets," added Victor Lazarovici, analyst, Smith Barney Inc., New York.
"Shares in gold stocks are financial assets, but they are backed by gold."
He has an optimistic outlook on gold. He thinks the price of gold will hit $450 an ounce by the end of the year. The price recently rose to $400 an ounce.
"Gold stocks frequently lead the metal in price," Mr. Madden said.
Mr. Lazarovici noted Barrick, which tends to hedge against the price of gold by selling mining production forward, "has reversed its policy of being price indifferent." It has reduced its forward sales.
Mr. Madden, however, doubts gold would reach $500 without a major international incident.
But Mr. Klein said, "I'm skeptical of the rally being sustainable."
"My suspicion is that gold will stay in a trading range of $395 to $420 an ounce."
The mine production of gold has failed to keep up with supply since 1994, according to Mr. Lazarovici. He expects the deficit to continue into 1997.
Last year, mine production totaled 2,268 metric tons, while fabrication demand for jewelry, electronics and other uses was 3,216, according to Mr. Madden. But the gap doesn't necessarily portend rising gold prices, he added. The gap generally is filled by sales of scrap and forward sales, he added.
