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Kleinwort Benson: More ‘Blue Sky’ ahead: “Gold trending higher”

Tuesday, November 02, 2010
Opalesque Industry Update - Gold has prospered as investors have sought ‘safe haven’ assets and protection against inflation. Gold is up c. 70% in 3 years and almost 25% since the beginning of the year, and with analysts at Goldman Sachs recently predicting that the spot price will be at USD 1,650 in a year’s time, some analysts are talking of Gold as a bubble waiting to burst.

Kleinwort Benson’s Head of Advisory Portfolio Management, Andrew Thompson, believes that Gold may well become a bubble in due course and if so, it will burst - as all bubbles tend to do. However, for now, he is encouraging his ‘Trend Following’ clients to stick with their Gold positions and to protect the downside via Trailing Stops.

Gold is also seen as a ‘currency of last resort’ and the spectre of an all-out Foreign Exchange war is adding to Gold’s appeal. At c. USD 1,355 Gold is currently trading at an all-time high. Some investors believe that the very fact that Gold is trading at an all-time high is indicative of a bubble and is grounds for selling the commodity. This is not consistent with Thompson’s Trend Following investment philosophy. Indeed, Thompson points out that when Gold finally broke through USD 1,000 in September 2009, there were plenty of analysts decrying the commodity as a bubble. Since then Gold has gained a further 36%.

Thompson also points out that Gold is very difficult to value from a fundamental perspective (because it has no yield), thus its price has the potential to be driven much, much higher by the dual forces of ‘Fear and Greed’. For now Gold remains in the clearest of primary up-trends and more ‘blue sky’ beckons, with some financial commentators forecasting price targets of USD 1,500, USD 2,000 and some even suggesting the price could go as high as USD 6,000.

In a poll taken amongst bankers, producers and analysts attending the London Bullion Market Association conference in Berlin recently - one of the biggest gatherings of the precious metal’s industry – the consensus view was that Gold will rise to USD 1,450 a troy ounce in the next year.

In the short-term, Thompson accepts that Gold is looking ‘overbought’ and some sort of correction is all but inevitable. Thompson’s Trend Following clients are likely to use any such correction to add to existing Gold holdings. In the meantime, they are protecting the downside by raising their Trailing Stops.

Gold is one of 15 or so themes that Thompson is following and in which the Bank’s clients are investing via his Trend Following Managed Advisory Service.

(press release)

The Kleinwort Benson Managed Advisory Service is designed for experienced and financially sophisticated, high net worth clients who want to work with their investment adviser in identifying major market themes and trends and who wish to receive personalised advice on their investments and the management of their portfolios. Risk management is at the core of its investment philosophy. Clients are alerted to investment opportunities and with regular advice on the management and composition of their portfolios, the client maintaining the decision to purchase, hold or sell an investment.


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