ABSTRACT
Two potentially important sources of demand for gold bullion should be encouraged as a consequence of various legal changes made in the past few years — demand by US institutions and demand by private Japanese investors. Amendments made to the Employment Retirement Income Security Act of 1974 that controls the disposition of pension funds in the United States in 1979 changed the ‘prudent man’ rules from the requirement that each item in the portfolio had to be prudent to the new requirement that the portfolio of investments as a whole must be prudent. A second change occurred in 1981 when the US Comptroller of Currency removed gold from the list of ‘speculative assets’ that neither banks nor trust companies were permitted to hold. Those changes leave only one barrier remaining to increased institutional demand for gold and that is the availability of higher returns on cash than on holdings of gold. At the point where gold investments again offer better than alternative rates of return, strong institutional demand is expected to surface in the United States. The State of Alaska already invests part of its pension funds in gold.
