Advisers stay cool as the gold rush heats up

Rocketing gold prices have not prompted advisers to up their allocations to the precious metal.

The price of gold has been notching up record highs over the past year, topping $1,170 a troy ounce in Monday trade.

A number of factors have been attributed to gold climbing more than $350 since January, including currency weakness, an uncertain economic outlook, emerging market central bank interest and speculators.

But many advisers are loath to predict how much higher gold can climb and intend to maintain a static 5%-8% exposure to the asset class.

Mike Horseman, at Cockburn Lucas Horseman, says his firm has been adding gold to client portfolios for about three years as a diversifier and inflation hedge.

He uses Marlborough ETF Commodity, which invests in ETFs and ETCs, as a core holding to access the gold price and the BlackRock Gold & General fund for clients with a greater risk tolerance.

"On a risk scale of one to 10, the client would have to have a risk profile of 5 or above before we would consider the BlackRock product," he says.

"The fund is up more than 100% over the past year on the back of the phenomenal jump in the gold price but it is a volatile market and there have been periods of significant underperformance in the past."

He has also been allocating money to Jupiter Merlin Income, managed by John Chatfeild-Roberts, a self-confessed gold bull.

Darius McDermott, managing director at Chelsea Financial Services, also recommends the £1.87bn BlackRock fund to clients looking for exposure to gold.

"It is a leveraged play on the gold price because the fund invests in the shares of mining firms, which tend to outperform gold on the way up or fall further when the gold price falls."

He adds: "But it is popular with clients because it is an equity-based fund, which they understand."

Harry Katz, director at Norwest Consultants, also uses the BlackRock product as well as Investec Global Gold for his clients.

However, he is not keen on ETFs because he feels gold is a "very risky asset class with a terribly high volatility rating" and he does not believe advisers are in a position to react to price movements with the speed required.

Meanwhile, IFA Martin Bamford tends to avoid specialist gold products, taking the view that his clients get sufficient exposure to precious metals through more conventional investments, with about a quarter of the FTSE 100 index in mining stocks.

Any further direct investment could put a client at risk, the Informed Choice managing director believes.

Justin Urquhart Stewart, a director at Seven IM, adds: "Gold has become a fashionable investment but it must be remembered that over the past few years, performance has been poor. Returns have not kept up with inflation and it has no yield.

"But it is important to have a small proportion of a portfolio invested in the asset class as a hedge against the loss of confidence in other markets."