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Raising the bar

Fund managers are wary of gold after its steep price rise but some think it could edge higher, reports Chris Salih

Industry experts have not ruled out gold rising further despite a number of them starting to lower exposure to the commodity.

Last week, gold hit a high of $1,518.10 an ounce, rising steadily from $1,320 at the end of Janu-ary as investors continued to search for a safe haven from geopolitical and economic concerns.

The price of gold has risen sixfold in the last 10 years and has more than doubled since the global financial crisis of 2008. But has it reached its peak?
Two leading multi-managers agree that gold still has a strong long-term story but its run has made them wary in the short term.

Aberdeen’s multi-manager team recently sold its exposure to gold within its £800m range after phasing out holdings in the BlackRock gold and general fund and a physical gold ETF position.

Aberdeen multi-manager Scott Spencer says: “In the longer term, we can still see a case for gold and I can imagine us going back into it but the current run led to us moving out. We may look at it again if it goes towards the $1,300 an ounce mark.”

Cazenove also holds gold through exchange traded funds and is look-ing to hold its position below 5 per cent.

Multi-manager Robin MacDonald says: “Gold has had a fantastic run but it is a crowded trade at the moment. We are bullish on the asset class but unfortunately nothing goes up in a straight line so we are not chasing aggressively.”

However, Investec global gold fund manager Brad-ley George says he expects gold to trade above $1,500 an ounce on average this year, pointing to the fact that geopolitical and sovereign risks will not diminish enough to weigh heavily on gold and may even propel bullion to new heights.

He says: “We believe that the US Federal Reserve and other central banks are likely to continue to pursue highly accommodative monetary policies well into 2012. The prospect for prolonged easing means that monetary policy is not likely to be used to counteract higher oil prices. This could translate into increasing gold prices.”

George points to the fact that the Chamber of Mines, South Africa, which has the biggest gold reserves in the world, saw a 6.4 per cent reduction in its gold reserves in 2009. It says this was due to a strong rand, rising labour and material costs and higher power and fuel costs.

George says: “The inability of the global mining community to significantly increase gold production in the face of high prices is very supportive of a gold bull rally.”

Sector Investment Managers chief executive officer Angelos Damaskos says the inflationary problems for developed economies are likely to continue to support high gold prices and says it would not be surprising to see an ounce of gold selling for over $1,600 before the end of the year.

He says: “Gold prices could continue rising for as long as global debt is a problem and inflation keeps rising. Investors are concerned about the global purchasing power of their money and are moving to alternative stores of value.”

AWD Group head of communications Patrick Connolly says his firm is not actively placing clients into gold, given the strong run it has been on for the past decade.

He says: “We are always nervous when an asset class performs as strongly as gold has done in recent times. There is a perception that gold only goes one way – upwards – and that is not the case and at some stage it will fall and could do so sharply. We think that if people go into gold, they could get their fingers burned badly.”

Chelsea Financial Serv-ices managing director Darius McDermott says gold is not at a record high if you introduce any form of inflation indexing to it and gold equities are still 30 per cent undervalued.

He says: “We are not gold bulls and if you have been in gold for the long run, I can understand people stepping back. However, I think there is still value as gold has the ability to edge higher, whether it is spot price physical gold or gold equities. “I would prefer gold equi-ties at this stage but I think that now would be the time to limit that exposure to around 5 per cent.”


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