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New Star goes for gold

New Star is joining the gold rush and holding the Merrill Lynch gold & general fund across its fund of funds range.

Bullion prices have risen above $520 an ounce this year, up from $250 in 2000.

New Star believes that the asset class provides a valuable hedge against inflation and that the bull run has plenty of legs left in it.

Its cautious portfolio has a 1.5 per cent holding in gold & general while the most aggressive fund in its fund of funds range, the tactical portfolio, holds just over 7 per cent.

Increased demand for gold from China, India and the Middle East, with supply limited by central banks in other countries not selling as much of their reserves as expected, has pushed up the price of gold.

New Star has been increasing its exposure to the gold & general fund since June on the back of this theme.

Fund of funds manager Craig Heron says: “Gold has a place in funds of funds because it has a very low correlation with a lot of other asset classes. But the bigger question is why gold has gone up so much. The key driver is increasing demand and constrained supply.

“There were question marks over the management of mining companies in the past but they had to improve their efficiency when the price of gold got so low. They are now doing very well as a result of better quality management and the price of gold increasing.”.”

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