The recent gold price volatility could plague investors for some time, and further selling is also a risk, according to BlackRock’s natural resources head Evy Hambro.
The gold spot price suffered its worst one-day fall for 30 years on 16 April, dropping 9% and falling as low as $1,321 as investors rushed to sell the precious metal.
Gold has rebounded in the last week to around $1,450 as buyers returned to take advantage of lower prices, but the manager cautioned there could be another move down for the asset class.
Hambro (pictured), who runs the £2.2bn BlackRock Gold & General fund, told Investment Week he has been buying on the falls, but has not significantly increased the volume of his trading because of the risk the spot price could fall further.
“We have been adding to some holdings, and buying some physical gold via ETFs, to take advantage of price falls where we have seen them. But we have not raised the volume of our trading [relative to usual levels].
“We want to see where the dust settles, and it is too early to tell if it has settled yet. The size of the move down will have certainly unsettled investors, and people may move to take profits given the size of the recent bounce.”
However, Hambro said the nature of the price falls also suggested more buyers may be entering the market.
He said the drops were primarily the result of selling in the futures market, given they were not accompanied by notable changes in fundamentals, such as big falls in either ETF holdings or central bank purchases.
“As far as we can tell, the price drops were due to paper-based transactions in the futures market, someone taking the view the price would go lower. They have been right, but they will probably have to buy back in at this stage.”
The manager said supportive trends such as loose monetary policy and a troubled situation in Europe remain in place, but acknowledged the stronger US dollar seen since the start of 2013 has “taken some of the shine off” bullion.
As traditional sources of funding for the resources sector have dried up, Hambro is employing more complicated forms of investment where his mandates permit – principally via his £1.3bn closed-ended World Mining trust.
The “more imaginative” financing deals include a recent investment in a Congo-focused gold company, where Hambro’s team bought into a gold-denominated share class with a high coupon attached.
“These deals are difficult to complete and take time to negotiate. But we have to put our capital to work where we can get the best return,” he said.
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