Gold flashes brightly for US hedge funds

Date: Friday, July 31, 2009
Author: Barney Hatt, Investment Week

US hedge fund managers are buying gold anticipating that prices will be boosted by the effects of European governments' quantitative easing (QE) programmes.

Twenty out of 22 hedge fund managers interviewed by US firm Moonraker Fund Management say they are buying physical gold out of fear the QE programmes would fail and cause steep price rises.

Should quantitative easing fail and we enter a deeper recession gold prices would rise as investors rush to purchase what is seen as a safe investment in times of deflation. Gold prices soared in the deflationary period in the 1930s.

Moonraker chief invesment officer (CIO) Jeremy Charlesworth says: "Gold is the ultimate currency, performing best when economies are at extremes, whether that is inflationary or deflationary.

"The managers I met in the US know that if the politicians get the quantitative easing programme wrong then the value of money relative to real assets will dwindle.

"History is littered with such instances; governments have a track record of destroying the value of money over the long term and currency devaluation is a relatively painless way for them to reduce the value of the enormous debt that is hampering economic recovery now."

He adds: "Everyone agreed that sentiment is better than it was a few months ago but none of the structural problems have yet been fixed. Double digit inflation two or three years down the line is a very real possibility."

Charlesworth, who manages Moonraker's Commodities and Global Opportunities funds, is increasing exposure to gold in both funds.

Moonrakers funds offer sterling, US dollar and Euro share classes and are available to both institutional and retail clients. The minimum investment is £15,000.