Van Eyk Research (VER) chief executive Mark Thomas said the van Eyk Blueprint Alternatives Fund is boosting its bets on gold on a view that the precious metal isn’t expensive and that its price should be well above US$2000.
“If you look at the last peak in the gold price, it was in the early 1980s at around US$850 an ounce,” Thomas said. “If you then adjust the gold price for inflation up until 2009, its real price should be well north of US$2000.”
“This week gold hit a record US$1200 on the New York Mercantile Exchange and people said that it has become expensive.
“We argue that gold isn’t expensive and that it hasn’t actually hit a record because it’s only around half of where it should be in real terms.”
The multi-manager van Eyk Blueprint Alternatives Fund recently boosted its allocation to the van Eyk Blueprint Gold Bullion Fund – which provides exposure to the precious metal – to 13 per cent from 10 per cent, Thomas said.
He added that market dynamics around gold have shifted recently and supported its price.
Central banks have become buyers of gold rather than sellers, Thomas said. The Indian and Sri Lankan central banks bought large quantities of the precious metal in November.
The sliding value of the US dollar and uncertainty over the health of many financial institutions has also caused investors to flock to gold as a safe haven, Thomas said.
Fund manager Baker Steel Capital Managers research analyst David Coates said he doesn’t necessarily agree that gold should be above US$2000 now simply because it failed to keep up with inflation after reaching a record in the early 1980s.
“From an inflation-adjusted basis, we are well off the inflated adjusted highs for gold but the factors at work back in the 1980s were very different. It was a very short speculative price spike,” Coates said.
“This time around the factors at work are very different – the increase in gold price seems much more sustainable because of factors including central bank demand and falling gold production.
“We wouldn’t be surprised to see it at US$2000 an ounce, but we’re not expecting to see US$2000 soon.”
