Gold prices to rise, says Select

Increasing inflation and an overvalued US dollar have produced an excellent climate for investing in gold, according to Select Asset Management and Baker Steel.

“We believe we are in the early stages of a strong bull market for gold,” Baker Steel managing partner David Barker said.

Baker Steel manages Select’s Gold Fund, which specialises in gold and precious metals.

Barker said the US dollar is not doing well and that inflation is becoming a big issue: two reasons why gold is going to increase in value.

“Gold does really well when you have negative interest rates, which we have seen,” he said.

China may also play a big role in increasing the value of gold; it has a large supply of US dollars and it is likely it will diversify its assets to protect itself from an American downturn.

Select believes that economists are urging Beijing to quadruple its gold reserves.

If China were to increase its gold reserves to 10 per cent of its total reserves, it would need to buy 5,057 tonnes of gold, Select said.

According to Select’s research, there has also been a slowdown in the rates of significant discoveries of gold, another factor that has contributed to the increases in value.

However, Select chief investment officer Dominic McCormick warns this doesn’t mean that investors should throw all their money into gold.

Gold is volatile and should be thought of as a long-term three to five year investment, McCormick said.

However, he added that most investors were still under-invested in gold.

“The first super fund that makes a big allocation to gold, well the career risk to the person who makes that allocation is a big one, but it will happen” he said.

He added that investors should have a five to 10 per cent allocation in a mixture of gold stocks and gold.