<\/p>\n
You can also listen to this podcast on iono.fm here.<\/p>\n
SIMON BROWN: I\u2019m chatting now with Tim Acker, portfolio manager, the Allan Gray Equity Fund. Tim, appreciate the early morning time.<\/p>\n
We have war, we have inflation, we have bond yields globally at multi-decade or in some case all-time highs. This should be a perfect situation for the hedge environment around gold. Instead it seems to be acting more as a risk-on asset. It is not doing what one would normally expect gold to do, which is, I think, perhaps a warning for investors.<\/p>\n
TIM ACKER: Yes. Good morning and good morning to the listeners. You are 100% right. So if we wonder why people historically own something like gold, typically it holds its value quite well when other assets are down. When markets are falling, it\u2019s a hedge against inflation.<\/p>\n
It\u2019s typically seen as a store of value when people lose trust in a currency or in governments, and lately that\u2019s the argument people have been using \u2013 a loss of confidence in the US dollar, independence of the Fed, these kinds of arguments.<\/p>\n
But then, as you point out, one would expect if there\u2019s a war the gold price would be going up. But actually the gold price is lower than where it started this year.<\/p>\n
Read:
Gold wavers near $4 400 as tame inflation eases rate-hike bets
Gold steadies as investors track war stalemate and stock moves
Gold falls as Trump rejection of Iran offer fans inflation fears<\/p>\n
SIMON BROWN: And that has implications. The big one \u2013 we saw it last year \u2013 is where the local market had a spectacular year. That was on the back of gold and PGM miners. We\u2019re now seeing the inverse this year. Gold Fields, AngloGold Ashanti \u2013 these are all sort of 30%, 40% off the highs from earlier in the year. It\u2019s a tough time for investors.<\/p>\n
TIM ACKER: Yes. As you point out, many of these gold and platinum shares have more or less halved this year from their peak around February.<\/p>\n
Something that was worrying us last year is yes, there are all these bullish long-term arguments for gold, but there has definitely been an increase in just general speculation and buying by investors of both gold and platinum \u2013 in addition to central banks also buying gold.<\/p>\n
Any idea that\u2019s a good idea can be taken too far right and at some point becomes a bad idea. So if there\u2019s just too much speculative activity, that always makes us a little cautious.<\/p>\n
We were taking profit in gold last year and this change in correlation, which seems like a technical thing, just means that gold is moving with shares rather than in the opposite direction. As it is a hedge definitely makes it less useful in a portfolio as a protection tool.<\/p>\n
Read:
Central bank gold holdings are at a 50\u2011year high
Goldman says central banks to step up gold-buying, aiding prices
\u2018The bigger risk is that gold goes higher, not lower\u2019<\/p>\n
SIMON BROWN: That was going to be my next point, because gold has a purpose in a portfolio. To your point, it\u2019s a hedge, sure. I might get some return from it, but its focus is on that hedge.<\/p>\n
Is there still opportunity here, or is this maybe an unanswerable question? Is gold fundamentally broken? Does it go back to its hedge status? How are you viewing that at Allan Gray?<\/p>\n
TIM ACKER: We still think there\u2019s opportunity in gold; we still think it does serve a purpose. But the size of the portfolio I think is really the critical question.<\/p>\n
It\u2019s one thing to say: \u2018I\u2019ve got this hedge in my portfolio. It protects against something really bad happening. It\u2019s maybe 5% of my portfolio, maybe 10% of my portfolio, in case something bad happens.\u2019 But then it\u2019s a very different thing if gold and platinum become close to a third of your portfolio, as it has in the All\u00a0Share Index.<\/p>\n
Read:
An ounce of gold is still an ounce of gold, and that\u2019s the point
High volatility ruins the mood for investors<\/p>\n
Earlier this year gold and platinum shares made up about a third of the index. Now it\u2019s dominating your return, and the volatility you\u2019re getting from that movement every day in the gold and platinum prices is moving your portfolio, sort of swinging it up and down.<\/p>\n
That we think is a little bit of a dangerous situation, so we\u2019ve definitely been trimming those positions and saying we still want to own gold, but just at a much smaller position size.<\/p>\n
SIMON BROWN: I get you. Back to sort of classic portfolio construction, which is the heart of it, is diversification and managing that part of the process.<\/p>\n
We\u2019ll leave it there. Tim Acker, portfolio manager, the Allan Gray Equity Fund, appreciate the early morning time.<\/p>\n
#Gold #moving #shares #reverse<\/p>\n","protected":false},"excerpt":{"rendered":"
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