Dr Graham Birch, manager of the Merrill Lynch Investment Managers Gold & General fund says he remain...
Dr Graham Birch, manager of the Merrill Lynch Investment Managers Gold & General fund says he remains confident the price of gold will remain high over the next 18 months because of factors such as threats of war and general economic insecurity driving investors towards the metal.
Gold prices could be expected to level off due to the low-inflation environment and the strong performance by gold stocks during the past year, Birch says, but these other insecurities are overbearing factors at present.
Demand in Japan is an issue because it has been driven more by retail demand rather than institutional investors, which Birch says is key to a rise in demand there over the next year.
Global gold prices have weakened since May, but the bigger 20% drop in the value of the fund in that period is partly due to gold company share prices overshooting on the up, Birch says, rather than any reflection on the ability of the fund's management.
The companies in the portfolio are still sound, with proven reserves and that ability to extract the metal at a reasonable price.
The fund is also cushioned against yet more volatility through holdings in platinum and palladium miners, and in diamond producers, including a mine in Canada that is set to become "pound for pound the most profitable mine in the world".
Other issues that investors are focusing on are the traditional inverse relationships between the price of the US dollar and the price of gold bullion, and similarly between rates of inflation and gold.
That pattern seems broken at present: a weak dollar usually sees gold rise, but despite the dollar falling through the 1 euro level the price of gold has remained fairly steady in the past week.
Low inflation is usually a sign that gold prices too will fall, but then inflation rates around the world are more likely to move up than down over the next year, indicating further support for gold prices moving up.
Birch says he cannot answer the question whether it is too late to buy into the fund because he cannot predict the future.
But with a belief that gold prices could increase, and in the knowledge that the MLIM investment process has produced good gains for investors so far, he says the fund should still be seen as a viable investment opportunity.
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