Published: Monday, 4 Apr 2011 | 3:25 AM ET
Gold prices took a tumble in late January, but have since been going from strength to strength. Spot gold has risen 6.5 percent since January 28th. One fund manager thinks the precious metal has more upside as it remains undervalued.
Ben Davies, Director & CEO of Hinde Capital which runs a physical bullion fund thinks if gold [XAU= 1441.6899 5.14 (+0.36%) ] prices break past $1,440 in the coming weeks, they could make a $400 run to hit $1,840 by the end of the year. That represents a nearly 30 percent gain from current levels.
Davies said that with just 0.7 percent of global assets invested in gold, the precious metal remains under-owned.
With the end of the gold standard, central banks haven’t had to load up on gold despite big increases in the monetary base. “Governments, they don’t want to see the price of gold going up, because in reality it’s showing that you’re debasing your currency,” he explained.
Davies argued investors need to ditch the view of gold as a barbaric relic and start seeing it as a real asset, as it has the positive attributes of both a commodity and money.
The lure of gold is also apparent in the popularity of exchange traded funds or ETFs, which track the underlying asset’s performance. The world’s largest gold ETF – the SPDR Gold ETF gained 29 percent last year. However, Davies said ETFs are an inefficient way of investing in gold. “You’re buying a paper construct, you’re not buying the real deal. So you’re exposing yourself to liability, to counter-party risk.”
Last year, the Hinde Gold Fund outperformed the SPDR Gold fund, gaining around 40 percent.
According to Davies the best way is to invest directly in the physical metal itself, with ideally a third of a portfolio in gold. However, that level may still be too high for some fund managers, in which case he says a good starting point would be around 10 percent.