Mark Dampier: Mines a rich seam as gold looks set to keep its glow
Saturday 07 January 2012
Last year was a volatile one for the gold price. It reached a high of more than $1,900 per ounce in September but fell back to less than $1,600. Over the course of the year it was up 8 per cent. The recent falls seem to be caused by concerns about eurozone debt returning to the fore. You would think the eurozone crisis would be positive for gold as it is often regarded as a safe haven in times of market turmoil. Furthermore, I believe it will lead to quantitative easing in Europe, essentially the printing of new money which serves to devalue the currency. This should increase demand for gold as a store of value which cannot be debased by governments and central banks.
Investors, however, have decided to take short-term refuge in the US dollar, somewhat ironic given the longer-term challenges facing the US. It would seem the eurozone crisis has instead created the need for investors to have additional liquidity, and because gold is easy to sell it has seen the same flight to cash that risk assets have suffered.
In my view the attractions of gold remain undiminished, and for this reason I believe the fall back in price will be temporary. It could therefore present a buying opportunity for those wanting exposure. Buying physical gold or an exchange-traded fund is one way to build exposure, but a more risky (and potentially more rewarding) way is shares in gold mining companies. A pronounced gap opened up between the price of gold bullion and gold mining shares in 2011.
While the gold price appreciated overall, gold mining funds fared far worse with BlackRock Gold & General down 18.5 per cent and Smith & Williamson Global Gold & Resources off 27 per cent. Gold equities seemed not to go up much when the gold price rose but caught the full brunt of the metal's falls.
While gold itself is seen as a safe-haven asset (though I use that phrase cautiously), mining shares are seen as much riskier. When markets become risk averse the gold price often rises, but this doesn't necessarily translate into gains for gold mining shares. I don't believe this disconnect can exist over the longer term, though. A higher gold price means greater profits for miners, and in the long run higher gold mining profits should mean higher share prices in the sector. Indeed many are now able to reward their shareholders with dividends. Newmont Mining, for instance, has linked its dividend to the gold price and others may follow suit. It could attract more investors to gold mining companies.
Holders of funds such as BlackRock Gold & General have been disappointed by the fall in the price over 2011. I share that disappointment, being a holder of BlackRock. Yet I don't believe the fundamentals for gold have changed. We have negative real interest rates around the world combined with a debt crisis in the West. These conditions are likely to persist. It is hard to see central banks pushing interest rates up significantly in the next two years, and in Europe they could even fall further.
Evy Hambro, the manager of BlackRock Gold & General, is more bullish on prospects for his fund than I can remember. He compares gold equities to a "coiled spring" ready to bounce back strongly. Cynics will conclude, "Well he would say that wouldn't he?" Yet he has nothing to gain in terms of his long-term reputation by making statements like this without truly believing them. Given the price action over the past 12 months I am inclined to agree with him that a significant opportunity is presenting itself. However, gold remains a volatile asset class, and the shares of gold miners more so. Therefore investors shouldn't allocate more than around 5 per cent of their portfolio to this specialised area.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.h-l.co.uk/independent
Crowd-to-let: How crowdfunding sites can give investors a slice of the property market for £500
General Election 2015: How you vote next week could affect your finances
Dirty tricks in a divorce can cause some nasty surprises
Beware credit card firms’ odious tricks
10 tips for taking out a personal loan
- 1 How the language you speak changes your view of the world
- 3 Italian police 'reveal' what Jesus looked like as a young boy
- 5 YouTube social experiment shows just how easy it is to kidnap a child
In defence of liberal democracy
Over 50,000 families shipped out of London boroughs in the past three years due to welfare cuts and soaring rents
EU asylum policy is 'a direct threat to our civilisation', says Nigel Farage
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
Schools forced to act as 'miniature welfare states' with teachers buying underwear and even haircuts for poor pupils
iJobs Money & Business
£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...
£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...
£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...
£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...
Day In a Page
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings