FROM 'BLACK GOLD' TO REAL ONE

Gold has always held a special place in the world of investments. As a safe haven, it provides protection against inflation and economic crises. For instance, during the last financial crisis, the price of this precious metal rose sharply. Over the past couple of years, as the geopolitical situation worldwide began to intensify, the value of gold once again surged, reclaiming its position as a focal point for institutional investors.

As is widely known, Azerbaijan’s strategic reserves include gold as one of the components alongside its currency basket. While the Central Bank of the country shows little interest in investing in this asset—given the challenges of utilising it during macroeconomic emergencies compared to simply selling currency on the market—the State Oil Fund of Azerbaijan (SOFAZ), on the other hand, plans to increase its gold purchases. After all, the fund’s primary objective is to preserve and grow its savings, and the yellow metal, as demonstrated in 2024, aligns perfectly with this strategy—at least for the time being.

Current Asset

Gold has played a pivotal role as a strategic long-term investment. However, its true value has only been appreciated over time, particularly during periods of economic instability when its status as a safe haven comes to the fore.

The same applies to SOFAZ. Established in 1999, the fund began purchasing gold only in February 2012. At that time, to diversify its investment portfolio and enhance profitability, it initiated weekly purchases of 25 gold bars (10,000 troy ounces). Later, to minimise the risk of price volatility between 2018 and 2020, the fund added 30.18 tonnes (970,146 troy ounces) of gold to its investment portfolio over a two-year period, distributed in equal weekly instalments.

Gold purchases continued from the second quarter of 2018 to the second quarter of 2020, bringing the fund’s gold holdings to 101.8 tonnes (3,272,975 troy ounces). Subsequently, purchases were paused and only resumed in early 2024, as the "gold asset" regained relevance amid geopolitical tensions, wars, and global inflation. This resurgence is reflected in the metal’s price surge, which rose by 27.2% in 2024—from $2,063 to $2,624.5 per troy ounce. Moreover, from the beginning of 2024 to March 2025, gold prices increased by 40%.

Farhad Zeynalov, director of SOFAZ’s investment department, stated during a media briefing on the fund’s 2024 investment results and 2025 outlook that the volume of gold in the fund’s assets is expected to rise to 170 tonnes by April-May this year. "SOFAZ plans to increase the share of gold in its investment portfolio to 25%. In 2024, the fund acquired 44.8 tonnes of the precious metal, with 41 tonnes already delivered to the country. As of 31 December 2024, the total volume of gold in the fund’s assets stood at 146.6 tonnes (20.6% of the investment portfolio), valued at $12.4 billion," he explained.

By the end of the first quarter of 2024, SOFAZ had increased its gold holdings to 104.6 tonnes, reaching 114.9 tonnes by the end of the second quarter. During the second quarter, when prices peaked, the fund purchased over 10 tonnes of gold. As a result, by the end of the first half of the year, gold investments totalled $8.6 billion (14.8% of the fund’s investment portfolio).

By the close of the third quarter of 2024, SOFAZ ranked among the top five global gold purchasers, having acquired 12.1 tonnes of the metal. Overall, during this period, global gold demand grew by approximately 5%, setting a record and pushing consumption above $100 billion for the first time. According to the World Gold Council, Poland (over 60 tonnes), Türkiye (around 60 tonnes), India (over 50 tonnes), China (over 30 tonnes), and SOFAZ (approximately 30 tonnes) were the largest purchasers of the "yellow metal" during the year.

Whose Gold Is in the Fund?

A small portion of the gold purchased by the Azerbaijani fund in previous years was sourced locally, acquired from AzerGold CJSC. Specifically, it was reported that the fund bought 1.77 tonnes of metal worth $81 million from the company at market prices.

When asked whether this practice continues, SOFAZ clarified that, according to its rules, gold can only be purchased from member banks of the London Bullion Market Makers Association, in compliance with the association’s requirements. Established in 1987, the association includes international banks, producers, shipping firms, and clearing companies operating in the London gold and silver bullion markets.

"The last time we purchased gold from AzerGold was in 2020. After that, as you know, we suspended investments in this asset for some time. In any case, we buy gold that meets the standards of the London Association, so the country of origin is not a primary concern for us. Additionally, AzerGold is not a direct seller of gold; they also access the global market for this purpose. We are open to purchasing their products if they appear on the exchange," a SOFAZ representative stated.

The fund also emphasised that it buys gold at market prices at the time of the transaction. "We aim to conduct transactions during exchange hours to avoid price volatility throughout the day. We typically participate in trading about twice a week," the representatives added.

To Increase Profitability

It is worth noting that SOFAZ adjusted the structure of its investment portfolio starting in 2025. According to Toghrul Rahimbeyli, head of the fund’s risk management department, the share of investments in bonds was reduced by 10 percentage points (p.p.) to 40%, while the share of equities increased by 3 p.p. (to 25%), real estate by 3 p.p. (to 10%), and gold by 4 p.p. (to 25%).

He further explained that, from 2025, the currency structure of the fund’s investment portfolio will allocate at least 85% to the US dollar, gold, euro, and British pound, with other currencies accounting for the remaining 15%.

This strategy aims to further enhance the fund’s investment returns, which have now reached levels comparable to its annual oil revenues. As SOFAZ’s oil revenues have grown, it has been able to increase the proportion of higher-yielding, albeit riskier, assets in its portfolio.

"In this regard, our investment income in recent years has enabled us to fulfil our budgetary obligations while maintaining a portfolio that delivers higher returns. Over the past 25 years, the fund’s investment income has reached $14.9 billion," Toghrul Rahimbeyli noted, adding that the average annual return on SOFAZ’s investment portfolio over the past seven years stood at 3%.

Thus, the fund’s objective of preserving and growing savings from the sale of Azerbaijani oil and gas has been successfully achieved to date, and its flexible investment policy allows it to respond swiftly to global uncertainties.