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Dutch pension fund defeats central bank, wins right to invest in gold

Section: Daily Dispatches

By Den Haag
De Rechtspraak
The Hauge, Netherlands
Tuesday, September 10, 2013

Tuesday, September 10, saw the final ruling of the Board of Industry Appeals (College van Beroep voor het Bedrijfsleven) on the gold case brought by the Dutch pension fund Vereenigde Glasfabrieken against De Nederlandse Bank (DNB, the Dutch central bank) in 2011. The pension fund objected to an earlier directive of DNB.

This ruling is in favor of the pension fund, because the judges of this college, following an earlier decision in March 2012, not only ruled that a fund may decide how to implement its investment policy, but also ruled that DNB failed to underpin its concerns as expressed in the directive imposed [onto the pension fund].

By contrast, the underpinning of the pension fund was so clear that the judges fully agreed. They agreed with the pension fund that there may be circumstances that justify deviation from ordinary investment policies. Such circumstances included the financial crisis that began in 2008 and the euro crisis that was an extension of this financial crisis.

... Dispatch continues below ...


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These crises were indeed at the root of the defensive investment of the pension fund. DNB turned a blind eye to these circumstances and considered only an ALM study (Assets & Liability Management), a study that ignored any negative factors in an economy. Furthermore, DNB did not present relevant examples on gold investment other than a blurred report by JP Morgan, which stated that one should invest only 1 percent in a commodity. That study -- rather dubious and lacking detail -- turned out to be their sole defense.

It is also noticeable that the supervisors at DNB have not the slightest idea of gold's function in finance and economy. They are in good company, because most economists in the Netherlands don’t know either. Gold is the de-facto foundation of our economic system and it is therefore essential for any pension fund (or any other investment fund) to have gold in the portfolio as a hedge against unforeseen system risks. In the world of financial investment, gold is insurance and the return on that investment is not in interest or dividends but protection against inflationary measures of the government. The return on that investment is the safety of the portfolio.

Risks such as high monetary inflation, collapse of the system, war, and other major events are fully hedged in this way. Especially in high-risk times like today, gold is a buffer and a safe haven for many investors.

Unfortunately, this knowledge is not yet widespread, as DNB and large investment companies still blindly trust completely outdated studies like ALM. It is a tragedy that many funds have already incurred considerable losses due to this one-sided approach.

The great advantage of this final ruling (no further appeal is possible) is that pension funds again are free in their investment policy without the need to anticipate improper intervention by DNB. The ruling clearly indicates that DNB needs to substantiate its decisions carefully and that lax directives without valid arguments will no longer be tolerated.

This is truly a revolution: DNB is a supervisor, not an investment adviser. A supervisor should limit its directives to cases of clear malpractice or destructive financial policy. In other words, as the judges also indicated, supervision needs to keep its distance.


Thanks to Louis Boer for the translation from Dutch to English.

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