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Castlestone’s Angus Murray expects gold and emerging economies will continue to outperform equity and bond markets

Tuesday, August 16, 2011

Angus Murray
Opalesque Industry Update – Castlestone Mangement Inc. CEO Angus Murray is betting that real assets such as gold and other precious metals as well as opportunities in the so-called N11 (Next 11) emerging economies, will continue to outperform equity and bond markets in the near term.

“The European debt crisis and the raising of the US debt ceiling indicates that the Western World has not got its finances under control. These governments need short term funding to keep unemployment under control and the only solution is to create more money. In Europe this is being used to bail out ailing economies such as Portugal, Greece and Spain and in the US to move towards QE3. The upshot of all of this is that the value of money is falling so and we believe that owning unleveraged real assets is the only solution for savers and investors,” Angus said in a statement a copy of which was obtained by Opalesque.

Indeed gold is becoming a favorite amongst investors looking to hedge against inflation amidst the volatile markets of the past weeks. Last week, the price of gold climbed to an all time high of $1,800/oz as the decline in French bank stocks and the further slide in US stocks sent new worries across the financial markets.

Early this month, Superfund CEO Christina Baha predicted that the price of gold could reach up to $3,000/oz and added that global stock markets would plunge in coming years as various governments try to print more money in a failed effort to stimulate their respective economies.

Baha pointed out that as investors continue to worry over the US debt default issue, further loose monetary policy in developed economies will add to pressure on paper currencies that will help expand gold prices.

Even hedge fund managers are turning to gold in their search for safe haven. A report by showed that hedge fund managers are buying gold. “I’m going to continue buying silver and gold either through the exchange traded funds, the futures market, or through mining companies,” says Joel Smolen, fund manager at Axion Capital in San Rafael.

According to Angus, this scenario when most investors are holding on to gold, will drive gold prices to new heights. Already, a piece of gold the size of an I-Phone is worth $50,000. “Globally, acceptance of owning gold in your portfolio as an insurance policy is growing. Added to this is the strong bias towards owning gold in the emerging middle class populations of India and China,” he said.

Another area of opportunity is in the N11 emerging economies brought about by the increased debt burden in Western economies. The N11 or Next Eleven, are countries identified by Goldman Sachs as having a high potential of becoming the world’s largest economies in the 21st century, together with the BRICS. The countries, comprised of Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey, and Vietnam, were chosen by Goldman Sachs because of their promising outlooks for investment and future growth.

These N11 emerging economies do not have problems of volatility in equities or personal debt. More investors are looking at investing in the equities of strong companies in these N11 markets as a way to provide protection against the current instability of Western markets.

Angus asserted: “Behind all of this is our belief that unleveraged real assets are linked to the real economy. If you have more money in the economy then the value of unleveraged real assets must rise. However, we had the foresight to recognize the difference between a leveraged real asset, like property and an unleveraged real asset, gold bullion or art. Property has two leveraging factors – how much a bank is prepared to lend and what interest rate you pay for borrowing cash. If the bank lends three times your income with an 8% interest rate then you have one asset valuation, but if the bank lends you 10 times your income with a 2% interest rate, a very different valuation is on offer.”
Precy Dumlao

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