Gold Allocation Likely to Rise

From Adrian Ash

BullionVault

“For 10 Years”, Tops 2010 Strategies at World’s 3rd Largest Hedge Fund

THE PRICE OF GOLD slipped but held above yesterday’s two-week low in London dealing on Friday morning, giving back half of Asia’s 1% rally against the Dollar as the US currency rose for the fourth day running on the forex market.

Global stock markets ticked lower, as did broad commodity prices.

The Euro fell again towards $1.325 – helping push the gold price in Euros back above €33,300 per kilo – despite a record-high reading of German business confidence and a new “crisis resolution” agreement between European Union leaders meeting in Brussels.

Not starting until 2013, however, the deal delivers “little concrete” and “nothing to advance the [current] near-term measures” according to analysts.

Ireland’s debt was today cut 5 notches to near “junk” status by the Moody’s ratings agency, putting it on a par with Russia and Lithunia notes Reuters.

“Sovereign bonds have lost some of their ‘risk free’ attributes over the last couple of years, and trust in fiat currencies has been eroded,” writes HSBC Bank’s head of asset allocation Fredrik Nerbrand in a new report.

“No wonder many investors are choosing to buy gold as a hedge against the risks of paper assets.”

US Treasury bonds rallied on Friday, pushing 10-year yields back down to 3.38% from yesterday’s new 7-month high at 3.56%. But fund managers in Europe have been cutting their exposure, according to a Bloomberg survey, reducing their US T-bond holdings by 1.4% in November.

Nerbrand’s team at HSBC reckon that gold investment accounts for just 0.14% of the average global portfolio today.

“If this figure increases, as we expect, the gold price could rise significantly…We believe asset allocators are likely to increase their weighting in gold over the next ten years if they focus on risk management”

Gold has delivered the “greatest success” of strategies applied by Paulson & Co., the world’s third largest hedge fund,  reports the Financial Times meantime.

Betting on corporate events such as mergers & acquisitions has returned 14.3%, says the FT, while Paulson’s Credit Opportunities Fund has risen by 16.5% in 2010.

The Paulson & Co. Gold Fund has risen by 35%. Dollar prices for plain gold bullion have gained 23.4%.

“Profit-taking on the recent rally saw gold lose considerable ground on Thursday…exacerbated by a strengthening Dollar,” notes Walter de Wet, senior commodities analyst at Standard Bank, today.

“Yesterday’s dip in gold prompted some bargain hunting, led by the physical markets. Speculative action in the form of short-covering has also lent some support,” he says, but gold prices are “continuing to yo-yo about.”

Adrian Ash

BullionVault

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Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the mining-sector’s World Gold Council research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

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