Gold to stay strong, top performing funds say

Gold will stay strong due to a lack of alternative havens for investors operating in a slowing global economy, top performing commodity fund managers told Reuters after taking a defensive approach and going into cash during September’s gold sell off.

“We consider the current weakness in gold as temporary and also the slump in commodity prices should come to an end soon,” said Kurt Hug, an investment adviser for the Antares Precious Metals Fund.

The fund came third in the Lipper Global commodity sector rankings in the third quarter of 2011 by keeping a high percentage of “strategic liquidity” in Swiss francs in anticipation of “a severe, but short-lived commodity shock.”

Fund research and analysis organization Lipper, a Thomson Reuters company, covers more than 108,000 funds. The commodity segment covers funds investing in both commodities futures and natural resources-related equities.

Reuters approached the best performers to ask for details of their winning strategies.

Also staying defensive was Paula Bujia, manager of the $330 million Schroders Gold and Precious Metals Fund, which came fourth. Steering clear of precious metals other than gold, and investing in mid-cap gold miners rather than seniors and juniors, helped her outperform, she said.

The gold price has risen by nearly 17 percent so far this year, having hit a record $1,920.20 an ounce in early September before correcting sharply downwards. It was around $1,655 an ounce on Friday.

Bujia said gold’s correction from its peak was still only half of its declines in 2008 and she would wait for more selling of gold, particularly in exchange traded funds (ETF), before she felt able to resume aggressive buying of other precious metals and of mining equities.

“In this environment, it’s very difficult to believe that other precious metals could do well,” she said. “Until we see more capitulation in gold and more ETF outflows it is not the right time to turn aggressive.”

Bujia is sticking with her gold tilt, saying the recent correction has been meaningful, but gold is not yet at a capitulation point. She believes gold may trade sideways for another couple of months, or come off another 10 percent.

Precious metals funds dominated the upper end of the Lipper league table of over 130 funds in the third quarter.

The LGT Dynamic Gold Fund came first, returning 9.36 percent over a quarter which saw the commodity index S&P GSCI fall 11.69 percent.

Peter Sigg, head of investment management for commodities at LGT Capital Management, said the $73 million fund had been invested between 96 percent and 115 percent over the quarter.

“We have been slightly leveraged during the move to (gold at) $1,900 (an ounce) and we were slightly invested in cash during the sell-off in September,” he said.

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