9/18/2012 01:07:00 PM

Oil Fund Pursues Gold

Gold still holds allure for investors, and as one state oil fund shows, it may be an asset class growing in popularity.

(September 18, 2012) -- The State Oil Fund of Azerbaijan (SOFAZ) -- whose assets totaled $32.67 billion as of July 1 -- has purchased 10 tons of gold, Executive Director of the Fund Shahmar Movsumov has revealed to the Azeri-Press Agency (APA).

"We’ve also applied to the Cabinet Ministers with a proposal to introduce a zero rate of customs duties…on import of gold purchased abroad in the country. So far the fund has bought around 10 tons of physical gold," Movsumov said.

According to the news agency, the fund's investment policy allows it to keep up to 5% of its investment portfolio in gold. Within the next two years, the fund is planning to accumulate up to 30 tons of gold. SOFAZ began purchasing physical gold since February and by July, it accumulated 6.85 tons of gold for $343.14 million. By the end of 2012, the fund’s gold reserves will reach about 7.5 tons, a release by the agency noted.

Although gold is a non-yielding asset, its safe-haven status has been desired by some during continued economic crosswinds. The oil fund's gold allocation may be wise timing, some investors say. Gerald-Alain Chen-Young, chief investment officer of the United Negro College Fund, told aiCIO that gold may be one of the best-performing asset classes over the next five years. "Gold is a natural reserve asset diversifier especially for central banks, sovereign wealth funds, and other large institutional investment portfolios…gold is an ancient, timeless store of value and therefore possesses the unique trait of being both an inflation and deflation hedge," he said.

In May, a Japanese pension fund allocated to gold through an exchange-traded fund, attempting to escape being hit by the troubled domestic and global economies. Yoshisuke Kiguchi, chief investment officer at the fund, said the move was to 'escape sovereign risk'. Kiguchi said the pension fund trustees had been convinced of this investment decision as over the long term, gold could result in being one of the "safe currencies."

Contact the writer of this story:Paula VasanPaula VasanManaging Editor, aiCIO646-308-2742pvasan@assetinternational.comFollow on Twitter at @ai_CIO