Gold tipped to reach record heights despite dip

On Wednesday of last week, the price of bullion fell below $1,190 an ounce, $67 less then the record high reached in mid-June.

The fall has been blamed on July being a seasonally weak period for gold, but it has also been suggested investors’ risk appetite had increased.

However, commodity managers are sticking with their gold positions over the long term and have been buying up on price weakness.

Daniel Sacks, co-manager of the Investec Global Gold fund, has used inflows to purchase gold equities, which he says tend to lag the gold price  over three to four years and normally give a geared return. He holds Lihir Gold and Newcrest Mining, two Australian companies in the process of merging, as well as Goldcorp and Randgold Resources.

He expects demand to pick up in September ahead of the Indian wedding season and the price to average $1,275 for 2009.

Last October, Jim Rogers, dubbed an investment guru for calling the start of the commodity bull market in 1999, predicted gold could break the $2,000 an ounce barrier.

However, Sacks says he is “uncomfortable with this target.” Ian Henderson, manager of the JPM Natural Resources fund, thinks $1,350 is a reasonable forecast for the end of the year.

He too has been increasing his exposure to gold more recently after letting it drop down at the beginning of the year.

“We hold Lihir Gold and Newcrest Mining, Barrick Gold, Red Back Mining, which we still like even though it has had a terrific run, and Goldcorp, which we think is a safe pair of hands. We are not keen on the South African companies but maybe they have turned a corner,” he says.

John Redwood, chairman of the Evercore Pan Asset Investment Committee, says gold has done well out of the banking crisis, while governments printing money caused some to fear higher inflation, which can lead them to gold.

“Will this good performance continue?” he says. “It gets more difficult the higher it rises. Gold investors enjoy no income on the coins or bars and have to pay the costs of storage and protection. It appears rising Asia likes the shine of special metal as well as some rich Westerners, and is adding to the speculative attractions.”

Sacks adds central banks, particularly in emerging markets, have been boosting gold reserves to diversify away from the US dollar into hard assets.

“The selling has slowed in European central banks and we have seen emerging markets buying. Russia made a purchase in Q1 and Saudi Arabia last month. China and India were the biggest buyers last year.” All this is supportive of the gold price, he adds.

Evy Hambro, manager of the BlackRock Gold & General fund agrees: “The key factors that have been driving investment demand are likely to persist. Other positive long-term factors, including falling mine supply and the potential for a reduction in net central bank sales, will all be supportive of prices. Indeed, central banks may even become net buyers of gold.”

Categories: Commodities

Tags: Blackrock | Investec | Gold

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