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By James Smith | Published Jun 08, 2012

David Baker predicts a gold shares rebound

Gold equities’ ongoing underperformance relative to the precious metal has created post-credit crunch lows at which to buy the stocks, according to David Baker.

Mr Baker – who runs the Ruffer Baker Steel fund alongside Trevor Steel – said gold shares enjoyed a powerful rally after the 2008 crisis, up 16.2 per cent in 2009 and 34 per cent in 2010, and predicts a similar rebound could be imminent.

“Underperformance of gold equities relative to gold is now at such an extreme that it presents a rare opportunity to enter the market at levels that have not been so discounted since 2008,” he said.

“There has been widespread disappointment in gold shares over the past 18 months. It is fair to say some producers have failed to deliver and others have pursued disastrous mergers and acquisitions, yet in our view it is inappropriate to paint the whole sector with the same brush.”

Meanwhile, Mr Baker said markets remain fixated on whether a further round of quantitative easing is about to be unleashed.

In his view, currency debasement will remain a central theme for many years to come and regardless of the scepticism surrounding gold, Baker Steel expects the best years for the metal still lie ahead.

In April the fund had a solid month of relative performance against the FTSE Gold Mines index, driven partly by several smaller holdings based in Australia.

Mr Baker highlights gold and copper producer Straits Resources, which made a significant new discovery at its Tritton copper mine that led to a 30 per cent-plus share price rally.

Elsewhere, Norton Gold Fields, a Western Australian gold producer, also received an indicative all-cash takeover offer from Zijin Mining Group, China’s largest gold producer, at a 46 per cent premium.

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