U.K. Gold Demand Seen Rising as Regulator Reviews Pensions

Apr 25, 2014 5:29 am ET

(Updates with regulator comment in seventh paragraph.)

April 25 (Bloomberg) -- U.K. gold demand will get a boost from investors saving up for retirement if the U.K.’s Financial Conduct Authority adds bullion to its list of “standard assets,” brokerage GoldCore Ltd. said.

The Financial Services Authority, replaced last year by the FCA to oversee market regulation, published a consultation paper with the list in 2012, asking whether other types of investment should be added. Cash, bonds and exchange-traded commodities were included and physical gold was not. The regulator’s decision is expected by the end of June, Goldcore said in a report today.

“It should lead to an increased demand for gold and to gold being on the radar of more mainstream investors,” Mark O’Byrne, a director at Dublin-based GoldCore, which manages more than $200 million in bullion, said in a phone interview yesterday. “If that happened, it would contribute to gold being seen almost as a mainstream asset.”

The FCA rules apply to U.K. providers of self-invested personal pensions, designed for people who want to choose their own ways to invest pensions. Investment-grade gold was permitted for them since 2006 and featuring it on the regulator’s list would help raise awareness that pension funds can invest in physical bullion, according to GoldCore.

‘Niche’ Investment

Gold remains a “niche” investment because only “very few people are aware that you can actually put physical gold into a pension fund,” O’Byrne said. Current allocations to bullion are “very low,” with 5.2 percent of GoldCore’s clients having gold in their pension funds, he said.

Gold dropped 28 percent last year, the first decline in 13 years, as speculation of reduced U.S. stimulus curbed demand for the metal as an alternative investment. Prices rose 7.7 percent this year, partly because unrest in Ukraine spurred haven demand.

Standard investments were defined by the FSA as any asset “capable of being accurately and fairly valued on an ongoing basis, readily realized whenever required, up to a maximum of 30 days, and for an amount that can be reconciled with the previous valuation.” Non-standard investments include all other assets, according to the regulator.

“We’re expecting to publish rules later this year,” FCA spokeswoman Lara Joseph said in an e-mail in response to questions from Bloomberg.

“In 1980, 20 percent of investment funds were allocated to gold and today the figure is believed to be less than 2 or 3 percent,” O’Byrne said. “That shows that there is room for a significant rise in the demand for gold in pension funds and an increase in the overall allocations to gold within pension portfolios.”