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Multi-asset managers split on how to play gold

Multi-asset funds are adopting differing approaches to dealing with the volatility in gold after the yellow metal’s price dropped.

The price of gold is now around 20 per cent below the peak of $1,921/oz it reached in September 2011 after it suffered spectacular falls last month.

Armstrong Investment Managers chief executive Ana Armstrong, who runs the £37.3m IM Distinction Diversified Real Return fund, has implemented a derivatives strategy in response to gold’s volatility.

She says: “Rather than just buy gold we have used a jump in gold’s implied volatility to allow us to sell put options at a very attractive price. We have created a strategy which is profitable even if gold falls by a further 7 per cent and allows a significant upside capture if gold bounces from current levels.”

Armstrong adds the strategy will not be profitable if the gold price rises to $1,620/oz by 20 July although she does not expect the metal to jump this high in the coming months.

Premier Asset Management head of multi asset David Hambidge, on the other hand, has elected to keep his multi-asset funds “on the sidelines” when it comes to gold as he argues  its steady decline means the metal cannot be considered a safe haven.

He says: “It is the ultimate ‘greater fool’ investment, where the lack of any fundamentals, in particular, an income stream, means you are relying on someone stupider than you to buy your holding at a higher price than you paid for it.

“There is one conclusion we can safely draw from all this: if nobody knows for certain what has driven gold’s price in the past, then logically nobody can predict what’s going to happen to it in the future.”

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