Half of the best performing funds in September were gold specialists, all delivering double-digit returns.
The stars were WAY Charteris Gold Portfolio (up by 14.43 per cent in September), BlackRock Gold & General (13.37 per cent), Smith & Williamson Global Gold & Resources (13.3 per cent), CF Ruffer Baker Steel Gold (12.75 per cent), and Investec Global Gold (12.58 per cent).
This turnaround – none of the five funds have achieved a positive return over a one-year time period – is due to the widespread use of quantitative easing (QE) by central banks, according to Richard Troue, an investment analyst at Hargreaves Lansdown.
‘It’s early days but, with this round of QE3 being open ended and continued demand for gold from central banks, the outlook for the physical metal and gold mining equities is good,’ he explained.
QE pushes up gold prices in several ways: it increases demand as central banks buy gold; it raises concerns about inflation, against which gold is viewed as a hedge; and it depresses interest rates, which lowers the opportunity cost of holding a non-yielding asset.
Following September’s QE announcements from Europe and the US, gold has indeed appreciated. Earlier this week it hit a high of $1,794 (£1,109) an ounce, a level not seen since November 2011.
And experts are confident it will soar further. Evy Hambro, manager of the BlackRock Gold & General fund, has used his latest gold report to forecast that the metal will reach $2,400 (£1,483) by the middle of 2013, a gain of a third.
‘The gold chart has turned decidedly bullish with the 50-day moving average rising above the 200-day moving average,’ he observed.
‘The last time this happened was in February 2009, which interestingly was shortly after the implementation of QE1. Then, gold was $900 and never looked back. Should we witness a similar rally, prices would be taken to $2,400 by midsummer next year – and $1,760 would be the new floor.’
Other analysts have echoed his faith. Brett Hague, portfolio manager at Global Commodity Investments, has targeted a price of $2,000 despite ‘some short-term resistance around $1,800’. George Tsapouris, investment strategist at Coutts, also commented, ‘We like gold as a real alternative to debased paper currencies.’
One danger cited by Hague, though, is a Romney victory in the US elections due to the Republican candidate’s commitment to ending QE.
