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Meet the gold gurus

Gold passed £1,000 an ounce last week for the first time. How fortunate, then, that I had the benefit of the opinions of BlackRock’s Catherine Raw and Mark Lacey from Investec on commodities not so very long ago.

I have previously mentioned that the Cofunds roundtable I chaired, and to which Raw and Lacey contributed, was a lively affair. Had it not been for the turmoil in the eurozone sovereign debt market, I would have already shared my experience with you.

But one week on and here we are, soon enough after the event for the memory still to be fresh. Commodities continue to provide solid performance but investors – or perhaps it is their advisers – are still cautious on the sector. This is the conclusion I draw from learning that just 3 per cent of net sales flowed into commodity funds on the Cofunds platform, according to manager of fund group relations Michelle Woodburn.

But our two managers remained positive. Between them they covered a wide range of commodity options, which is an important consideration for investors. Commodity investing once meant choosing between companies mining for gold and other metals or those prospecting for oil and gas but today the choice is bewildering. With a whole range of metals, not to mention agricultural commodities, and the world from which to choose, a knowledgeable manager can be essential.

And there are so many more ways of accessing commodity markets these days, which brings us back to gold. Using exchange-traded funds to track a commodity such as gold is a relatively recent option. It is one used by a number of professional managers, including Raw, who is part of the team running BlackRock’s gold & general.

And while ETFs do feature heavily in that fund at present, gold is the focus and accounts for 80 per cent.

I have a soft spot for gold & general. It was originally launched as a vehicle for the late and much-lamented Julian Baring when he was at James Capel. Known as Mr Gold – or Goldfinger – he was an expert on the metal. I was part of the team that helped launch the fund but by the time the decision was taken to sell it to Mercury, which eventually became BlackRock, I had moved on to pastures new.

With silver and platinum accounting for much of the balance of the portfolio, the general side of the fund, which Julian insisted was included in the title and the terms for those times when gold shares did not look good value, is pretty concentrated. And shares appear good value compared with the metal, according to Raw – an opinion shared by Lacey. His special – isation is global energy and he sees value there too.

In fact, most commodities seem capable of making further progress in their view. Even agriculture, which is suffering from low inventories, rising input prices, such as fertilisers, and competition for land use from biofuels could continue rising in price, particularly grain.

It is no surprise that governments are focusing more on food prices than energy these days. But Mark’s nap selection is natural gas, which has fallen in price but should resurge as demand continues to grow.

I left the discussion with the belief that the supercycle in commodities is intact. The growth of China and other developing countries should keep a floor under demand, even if fluctuating economic fortunes result in price volatility.

As for gold, with a rising proportion of demand coming from investors, it is clear that continuing uncertainty over sovereign debt issues and a weak dollar will act as support. Still, nothing is ever certain in this business.

Brian Tora is an associate with investment managers JM Finn & Co


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