Improvements in the US economy are unlikely to prolong gold’s current bear market, the manager of a fund investing in the precious metal has said.
Angelos Damaskos, fund manager of the Junior Gold fund, said the US is likely to struggle with growth in the coming year. “I can’t see US growth going on much further. Yes it is growing, but it is growing at such a weak rate that it is unlikely to stimulate its debts,” he said.
Money Management previously reported that rising interest rates in North America have driven investors to higher yielding equities, but Mr Damaskos believes this period of growth will not last.
“The growth in the US is clearly down to liquidity and the Fed’s printing of money,” he said.
“The US has been much more dynamic in addressing their problems than Europe. However, the US has a huge fiscal deficit and needs to raise tax revenues and cut back on government expenditure.
Beyond his prediction of weak growth in the US, Mr Damaskos also said that nuclear threats in North Korea and conflict in the Middle East will push gold prices up because investors “typically” invest in bullion during times of geopolitical instability.
This, coupled with the ongoing eurozone crisis, means the fund manager is confident of a turnaround.
“Given the problems in the eurozone and the situation in the US, it is likely investors will go back to safe havens,” he said.
“The Cypriot debacle will be very positive for gold in the short-term and depositors in Italian and Spanish banks will be considering their options and trying to find ways to protect there wealth – like investing in gold.”
Mr Damaskos also said gold prices could potentially soar as a result of supply levels falling.
“New supply next year could shrink dramatically as a result of costs rising dramatically and miners struggling to control these costs,” he said. “This could have a massive impact if demand once again increases.”
The Junior Gold fund has come under scrutiny in recent years due to poor performance. However, Mr Damaskos said this is caused by investors dumping small cap stocks in times of economic volatility and not because of drastic changes to the portfolio.
“The fund focuses on smaller caps, which in this adverse climate are sold off more quickly. Investors have been selling off illiquid shares,” he said.
“It wouldn’t be fair to compare our fund to BlackRock or Smith & Williamson, which invest in larger cap companies. Small caps are perceived as riskier and commodity investors are therefore now looking at large caps.”