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Going for gold

Every medium-sized and large growth portfolio should have an exposure to gold in uncertain times like the present.

The price of gold can be volatile but nearly all forecasters polled by the London Bullion Market Association expect gold to rise from its present value of around $630 an ounce by a substantial margin.

The average prediction is a high of $742 an ounce by the year end but Ross Norman, director of and the best gold forecaster last year, expects it to reach its all-time high of $850.

The reasons for this are that the supply of gold is falling, production was down by 2 per cent in 2006 compared with 2005 and central bank sales appeared to have fallen as well while demand has risen due to the success of the recently launched gold exchange traded funds. Gold also rises when there is political, economic and stockmarket uncertainty.

Much the best way of profiting from a higher gold price is to invest in a fund investing primarily in gold shares. When the gold price rises, some mining shares go up considerably more because their percentage profits can go up much more than the gold price.

The fund I like the best is Merrill Lynch gold and general managed by the AAA-rated Graham Birch. His fund invests mainly in gold but also in platinum and silver, with very small percentages in other metals and diamonds. Thirty-one per cent of the shares he invests in are in North America, 19 per cent in South Africa, 17 per cent in Australasia, 12 per cent in Europe and 8 per cent in China, with smaller percentages elsewhere.

His biggest holdings include Zijn Mining, Anglo Gold Ashanti, Lihir Gold, Newmont Mining and Goldfields. In the past five years, this trust has risen by over 270 per cent compared with the gold price rise of around 120 per cent.


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