Saturday June 19, 2010

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By Sam Devraj  ( Assistant Editor )

Gold price is likely to go up

WEALTHY families are continuing to increase their gold investments on fears of inflation and the escalation of Europe’s debt woes, helping to push up the price of the yellow metal, investment managers said.

Companies that managing money for the wealthy - called family offices - focus more on preserving wealth than chasing large investment gains. When the credit crisis hit, they shifted into safe assets, including treasuries and cash as well as gold.

Speaking at the GAIM hedge funds conference, managers of family offices said they have been building positions in gold via gold-focused hedge funds and mutual funds as well as gold exchange traded funds (ETFs), with some even stocking up on the precious metal.

“Physical gold had not been on anyone’s asset allocation for 20 years. That’s definitely made a big comeback,” said Egon Vorfeld, managing partner at the Forum Finance Group, a Geneva-based wealth manager for a global clientele of wealthy families.

Vorfeld said his company was also exposed to gold through investments in gold mining funds, while Anthony Gordon, principal of the Gordon Family Office, which manages money for the South African family, said, as well as other more traditional instruments, he was investing directly in miners, including South Africa's Anglogold Ashanti.

Emerging markets veteran Bill Browder said prices would to be boosted by fears about the stability of the world’s major currencies.

Although historically allocations to gold tend not to exceed 5 per cent, many managers said they were now prepared to go well beyond that.

London-based Eclectica Asset Management co-founder Hugh Hendry said with the current economic and political turmoil private investors should increase their gold allocations, though they should be wary of how they invest.

“In terms of family offices, it is unquestionable logic it should represent 10 per cent of assets. But I don’t think an ETF (exchange-traded funds) is appropriate to hold gold because it’s subject to political interference,” he said.

Many investors have bought into the gold story looking to profit from the strong price trend since early in the decade, which has added to the upward price pressure, said Salvatore Imperatore, head of Pareto Capital, a London-based high net worth advisory firm.

Imperatore said it was herd mentality and had contributed to bidding up prices.

Torsten Caspar, whose Gold Trust invests via gold futures, warned price shocks were in the offing.

“Even the cab drivers are talking about buying gold now. You just know prices could be in for a sharp near-term correction,” he said.

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