US debt concerns are coming to a head as its government looks to hammer out a deal ahead of the deadline of 2 August. However, Bradley George, manager of Investec Global Gold Fund, believes even if a solution is found, gold should continue to show strength.
Acting as a diversifier to US dollar exposure, gold has prolonged attractions even if the immediate debt crisis is solved.
He says: “If the gold rally is at least partly predicated on long-term credit concerns, then we believe the long-term view still looks positive for gold as foreign creditors holding US assets will have to cope with very low yields on US Treasuries while at the same time facing a generally depreciating currency.”
Bradley points out that for years the price of gold has been inversely correlated with the dollar, although there are times when investors have sought both in a search of safe-haven assets.
However, as long as the dollar remains the world’s principal reserve currency, right now is not such a case.
“The dollar on a trade-weighted basis is still close to new lows. On a multi-year basis, it has been depreciating for decades and in the long run a decline of the dollar would continue to help gold prices,” he says.
While Bradley admits there has been continued dislocation as the physical gold price has outpaced gold equities, he still believes the best value is to be found is in the latter, saying: “Across our universe we see in excess of 15% upside in most of sectors.”
He suggests the gold price will hover at $1,550/oz for the remainder of 2011 and as such expects gold miners’ margins to start expanding, something not currently reflected in gold companies’ share prices.
