Record breakers: gold and oil prices reached record highs as alarms sounded on inflationGoing for gold?
Last Updated: 1:27AM GMT 23 Jan 2008
The price of crude oil and gold smashed through key milestones this week, prompting investors to consider whether now is the time to take profits, writes Myra Butterworth
Crude oil gushes to historic $100 mark
Sterling slumps to four-year low against euro
Gold soared as analysts warned that inflation and high energy prices would remain a key threat on the economic agenda throughout 2008 - gold soared to $861.20 an ounce in New York on Wednesday, surpassing the levels last seen at the height of the inflation crisis in 1980.
Meanwhile, crude oil touched the $100 milestone for the first time in its history earlier this week, fuelled by jitters about geopolitical stability after the assassination of Benazir Bhutto and the unrest in Kenya.
But on being asked whether gold investors should now take profits, Ian Henderson, the highly regarded fund manager of JPM Natural Resources, was emphatic in his answer. "Absolutely not. It would have to get to $2,000 an ounce in real terms to reach an all time high and we are miles away from that," he said.
"People are bored with property – they don’t like to lose money and they don’t know whether Alistair Darling will bail them out from any banks that may fall into trouble. They get something different with gold which is a useful hedge against inflation and they can get a real feel for the value of their wealth."
Henderson has around 33 per cent of his Natural Resources fund in gold and precious metals and he reckons this could increase to around 40 per cent. He is also bullish on oil and energy related stocks in general. He is also finding opportunities in the less well known commodities such as cobalt, titanium and mineral sand but added that he was reducing his exposure to base metals such as copper and nickel. Here is what other leading experts had to say on whether now was the time to sell oil and gold. (Comment: Looks like Mr. Henderson was wrong in retrospect.)
Graham Birch, head of BlackRock's Natural Resources Team and manager of the Gold and General fund said: "Gold has started off in 2008 at an all time high in excess of $850 an ounce. This represents a continuation of the upward trend which has been in place since 1998. The last time that gold was at $850 an ounce was back in January 1980.
"The main positive factors which have been affecting gold recently include:
- the weakness of the US dollar,
- financial market turmoil and
- more than a whiff of inflation.
Tragically, political instability has also been a factor in the aftermath of Bhutto's assassination.
"On the supply side, production from the worlds' gold mines continued to decline and we believe it would take a significant further rise in the gold price to reverse this particular trend. Although in the short term jewellery demand may suffer some price related weakness, the long term outlook remains bright with emerging market wealth trends especially favourable.
"So, for 2008 we anticipate that the market patterns inherited from 2007 will remain in place. While gold rarely goes up in a straight line the general tenor of the market seems likely to remain favourable."
Mark Harris, head of funds of funds at New Star, said: "I believe the price of oil will remain higher than lower and should not fall below $80 a barrel even if we were to see a slight correction from the current $100 mark. The long-term trend for oil will be upward and on this basis oil majors and oil services companies now represent good value. (Comment: Another prediction that turned out to be wrong on hindsight.)
"The outlook for oil is positive for investors for several reasons. Demand is on the increase, primarily from expansionary markets such as China. At the same time, OPEC is showing a reluctance to increase supply, which suggests supply may be running near capacity. This will continue to put pressure on the price of oil. "I still hold gold within my New Star portfolios - CF Australian Natural Resources and Merrill Lynch Gold & General. However, I have recently trimmed my weightings in expectation of a dollar counter trend rally that may put pressure on gold in the short-term. I believe the long-term outlook for gold is still good and any short-term correction may represent a good buying opportunity, possibly around the $800 an ounce mark. (Comment: In retrospect, he predicted the dollar counter trend rally putting pressure on gold in the short-term correctly.)
"The long-term outlook for gold is positive because demand is on the increase, supply remains marginal and the cost of mining is increasing. These influences combined should ensure that prices remain high."
Alan Steel, of Alan Steel Asset Management, said: "The oil price has been on a tear since summer 2003. Economic factors suggest it is near it’s peak and it is likely to fall 50 per cent over the rest of this year and beyond. Private investors sentiment is showing excessively high optimistic levels, a strong sell signal. Gold is probably on a long term bull market which started in 2001. But it is overdue a breather and a fall - but not as big a fall as oil. Here too investors sentiment is showing excessive optimism, a sell signal. (Comment: In retrospect, this chap got his predictions correct.)
"I would buy large cap equity growth, such as Henderson Global Technology, Neptune US Opportunities, or back Emerging Markets such as Allianz, RCM Stars, BRIC. Currently I think it is too late for oil and gold. Perhaps look at gold again next year."
Mark Dampier, of asset managers Hargreaves Lansdown, said: "Forecasting the direction of any commodity is almost impossible. Indeed I would suggest you might as well consult Mystic Meg so investors should not get carried away. Remember too that existing portfolios are likely to have exposure to oil and possibly gold too so make sure you are not doubling up.
"The outlook for oil depends much on the outlook for the world economy. If the US, Europe and UK hit a hard recession, I would have thought the demand for oil would reduce and therefore so would the price. The difficulty this time round however is that emerging markets such as China and India are huge consumers of oil which has not happened in previous cycles. Indeed China and India account for something like 35 per cent of world oil imports.
"There is much talk about a decoupling of the Asian type economies and the developed world. However it is far too early to say whether this is really true and I suspect for the time being Asia depends as much on the US as the US depends on it.
"There is also much speculation in the oil price especially given political tensions which of course can suddenly reduce too. I believe oil prices may well come down but if they come down to say $80 a barrel, does it stop the investment case? I think not. The majority of analysts have been using something around $60-70 a barrel for their forecasts so oil needs to come down a long way to affect company profitability.
"How would I play the oil price? You can buy a general commodity fund such as JPMF Natural Resources. However, I would suggest you look at C F Junior Oils a specialised fund that invests in smaller oil producing companies. These are just the types of companies that are being taken over by the large multinationals such as Shell, BP and Exxon who are low on reserves but are cash rich. The fund is run by Angelos Damaskos, the son in law of legendary investor Jim Slater, and I hold it in my own portfolio too.
"I have been a bull of gold for about 18 months. The gold price has only just gone through its old high in 1980. The obvious signal when we look back for the purchase of gold was when the chancellor sold half the gold reserves at about $250 an ounce. While gold doesn’t have a big industrial use, its use in jewellery has grown when demand from places such as India and China have grown with it as these have become more prosperous. In addition gold is looked at as a final store of value, it can’t be defaulted on like a currency or a bond.
"Given both the geopolitical and economic tensions in the world today it is not surprising the gold price has been moving up. I think it has every chance to go over $1,000 an ounce and I hold the BlackRock Merrill Lynch Gold and General fund.
"It is noticeable however that smaller and mid size companies in this arena have not done so well so it may be worth investors looking at Ruffer Baker Steel Gold fund and an offshore fund known as Craton Capital who tend to invest in the smaller and mid size gold companies".
"On the supply side, production from the worlds' gold mines continued to decline and we believe it would take a significant further rise in the gold price to reverse this particular trend. Although in the short term jewellery demand may suffer some price related weakness, the long term outlook remains bright with emerging market wealth trends especially favourable.
"So, for 2008 we anticipate that the market patterns inherited from 2007 will remain in place. While gold rarely goes up in a straight line the general tenor of the market seems likely to remain favourable."
Mark Harris, head of funds of funds at New Star, said: "I believe the price of oil will remain higher than lower and should not fall below $80 a barrel even if we were to see a slight correction from the current $100 mark. The long-term trend for oil will be upward and on this basis oil majors and oil services companies now represent good value. (Comment: Another prediction that turned out to be wrong on hindsight.)
"The outlook for oil is positive for investors for several reasons. Demand is on the increase, primarily from expansionary markets such as China. At the same time, OPEC is showing a reluctance to increase supply, which suggests supply may be running near capacity. This will continue to put pressure on the price of oil. "I still hold gold within my New Star portfolios - CF Australian Natural Resources and Merrill Lynch Gold & General. However, I have recently trimmed my weightings in expectation of a dollar counter trend rally that may put pressure on gold in the short-term. I believe the long-term outlook for gold is still good and any short-term correction may represent a good buying opportunity, possibly around the $800 an ounce mark. (Comment: In retrospect, he predicted the dollar counter trend rally putting pressure on gold in the short-term correctly.)
"The long-term outlook for gold is positive because demand is on the increase, supply remains marginal and the cost of mining is increasing. These influences combined should ensure that prices remain high."
Alan Steel, of Alan Steel Asset Management, said: "The oil price has been on a tear since summer 2003. Economic factors suggest it is near it’s peak and it is likely to fall 50 per cent over the rest of this year and beyond. Private investors sentiment is showing excessively high optimistic levels, a strong sell signal. Gold is probably on a long term bull market which started in 2001. But it is overdue a breather and a fall - but not as big a fall as oil. Here too investors sentiment is showing excessive optimism, a sell signal. (Comment: In retrospect, this chap got his predictions correct.)
"I would buy large cap equity growth, such as Henderson Global Technology, Neptune US Opportunities, or back Emerging Markets such as Allianz, RCM Stars, BRIC. Currently I think it is too late for oil and gold. Perhaps look at gold again next year."
Mark Dampier, of asset managers Hargreaves Lansdown, said: "Forecasting the direction of any commodity is almost impossible. Indeed I would suggest you might as well consult Mystic Meg so investors should not get carried away. Remember too that existing portfolios are likely to have exposure to oil and possibly gold too so make sure you are not doubling up.
"The outlook for oil depends much on the outlook for the world economy. If the US, Europe and UK hit a hard recession, I would have thought the demand for oil would reduce and therefore so would the price. The difficulty this time round however is that emerging markets such as China and India are huge consumers of oil which has not happened in previous cycles. Indeed China and India account for something like 35 per cent of world oil imports.
"There is much talk about a decoupling of the Asian type economies and the developed world. However it is far too early to say whether this is really true and I suspect for the time being Asia depends as much on the US as the US depends on it.
"There is also much speculation in the oil price especially given political tensions which of course can suddenly reduce too. I believe oil prices may well come down but if they come down to say $80 a barrel, does it stop the investment case? I think not. The majority of analysts have been using something around $60-70 a barrel for their forecasts so oil needs to come down a long way to affect company profitability.
"How would I play the oil price? You can buy a general commodity fund such as JPMF Natural Resources. However, I would suggest you look at C F Junior Oils a specialised fund that invests in smaller oil producing companies. These are just the types of companies that are being taken over by the large multinationals such as Shell, BP and Exxon who are low on reserves but are cash rich. The fund is run by Angelos Damaskos, the son in law of legendary investor Jim Slater, and I hold it in my own portfolio too.
"I have been a bull of gold for about 18 months. The gold price has only just gone through its old high in 1980. The obvious signal when we look back for the purchase of gold was when the chancellor sold half the gold reserves at about $250 an ounce. While gold doesn’t have a big industrial use, its use in jewellery has grown when demand from places such as India and China have grown with it as these have become more prosperous. In addition gold is looked at as a final store of value, it can’t be defaulted on like a currency or a bond.
"Given both the geopolitical and economic tensions in the world today it is not surprising the gold price has been moving up. I think it has every chance to go over $1,000 an ounce and I hold the BlackRock Merrill Lynch Gold and General fund.
"It is noticeable however that smaller and mid size companies in this arena have not done so well so it may be worth investors looking at Ruffer Baker Steel Gold fund and an offshore fund known as Craton Capital who tend to invest in the smaller and mid size gold companies".
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