Some multi-managers have been trimming their exposure to gold with Rathbones’ David Coombs suggesting the price could plunge by around a third within weeks.
Gold reached a record high of $1,900 an ounce earlier this week as investors continue to worry about the European debt crisis and with growing expectations that the US government could announce another round of quantitative easing. However, by 9am this morning it had fallen to $1,738 an ounce.
In the second week of August, Coombs reduced his gold weighting in both the Rathbones £33m total return and £52m strategic growth funds from 4 per cent to 3 per cent.
Coombs says: “The gold price is hugely unpredictable, as demonstrated by its drop in the 1980s. Gold could lose 30 per cent in a matter of weeks and that is the scary thing about it it is unpredictable.
“The price of gold could drop as gold equities have lagged behind. The equity market does not believe that the gold price is sustainable.”
Cazenove head of multi-manager Marcus Brookes has reduced his exposure to gold in anticipation of a 10 per cent rally in equities.
In the second week of August, he reduced gold exposure in the £588m diversity fund from 3.5 per cent to 2 per cent.
Brookes also reduced gold exposure in the £39.9m diversity tactical and £194.9m global (ex UK) funds from 4 per cent to 3 per cent.
Brookes says: “Gold is up by 20 per cent year to date. There are some cheaper areas to invest in and if the market does bounce back, some of the equities that have underperformed will see a bit of a rally.”
BestInvest senior investment adviser Adrian Lowcock says investors wanting gold exposure should look at shares.
He says: “Investing directly into the commodity could be risky. Why buy gold at $1,900 an ounce when you can access the shares for less? That margin will close up, with either gold falling in value or the shares rising. Investors would rather be in shares when that happens.”