Top fund managers expect further gold gains

Long-term gold investors John Chatfeild-Roberts and Ian Henderson have positioned their funds to benefit from further highs in the price of the precious metal.

Jupiter CIO Chatfeild-Roberts says the gold price is likely to be pushed higher by inflation and a drop in production. It has already risen 18% this year, and recently hit a series of all-time highs, peaking at $1,300/oz last week.

“Gold is nowhere near the price it achieved in 1979 and the tremendous monetary and fiscal stimulus will lead to inflation in the long run,” the manager says.

“Demand for gold as a hedge against inflation is rising from retail investors, central banks in emerging markets, and institutions. At the same time, the  rate of growth in production is declining so there is good potential for substantial gains over the long term.”

The manager of the Jupiter Merlin portfolios is a long-term investor in BlackRock Gold & General, and Physical Gold issued by ETF Securities, positions he holds across the £4.7bn Merlin range..

“Gold has had a decent run, so there is clearly the potential for short-term pullbacks.

“However, we believe gold still deserves a place in a diversified portfolio as the current economic backdrop is supportive of the gold price over the medium to long term,” Chatfeild-Roberts says.

The fund is up 15.2% year to 20 September against the IMA Global Growth sector average of 9.9%, according to Morningstar.

J.P. Morgan’s Henderson, manager of the £1.9bn Natural Resources fund, is overweight gold with a 31.6% allocation. He believes the gold price is set to soar further.

“Gold has not run its course by any means. I would not be a seller as I think the gold price has got further to go. But you cannot be dogmatic on the price of an asset with no function,” Henderson says.

The manager is not concerned about the strong inflows into the asset.

“We are not seeing a bubble. In the past 18 months, $130bn has been invested in gold, which is less than the market cap of Google,” he adds.

Henderson attributes gold’s recent boost to the continuation of quantitative easing in the US and the news Russia has increased its gold reserves by 50% year to date.

He says while there is still uncertainty in the global system and banks, money will be channelled into gold.

JPM Natural Resources is up 26.7% year to 20 September, according to Morningstar.

Meanwhile, Smith & Williamson’s Ani Markova, co-manager of Global Gold and Resources, bolstered the fund’s exposure to gold earlier this year in anticipation of price highs.

“We had the vision gold would outperform other metals, so we reduced our exposure to base metals by 5% and reinvested that in gold and silver equities,” Markova says.

“In addition, we had more of a conservative position throughout a volatile and seasonally weak summer holding cash, which we invested in August in anticipation of the current run in bullion.”
Markova warns there may be a correction in the next two months as the gold price has soared above its historical average growth trends, but she remains optimistic about gold’s outperformance in the medium and long term.

“Further appreciation will be driven by the continued low interest rate environment and concerns of the sustainability of a global recovery,” Markova says.

“Risks to the US recovery are elevated as the unemployment rate remains well above pre-recession levels and governments continue to slash budgets to manage debt. Austerity policies in Europe also threaten a consumption demand rebound,” she adds.