Investments 

Boss of £782m investment trust focuses on gold

Boss of £782m investment trust focuses on gold

Forthcoming cuts in US interest rates are likely to mean the price of gold rises, according to Alasdair McKinnon, who runs the £782m Scottish Investment Trust.

US president Donald Trump has called for US interest rates to be cut as his re-election campaign approaches.

Throughout his time in office, Mr Trump has highlighted, via Twitter, the strong performance of the US Stock Market as a vindication of his handling of the economy, and lower interest rates tend to lead to a boost in stock market prices, at least in the short-term.

This is because lower interest rates mean investors earn less on cash deposits, and so are incentivised to invest.

It may also boost stock markets because lower rates may mean lower repayment costs on mortgages and other debts, leaving more cash to spend, increasing demand for the products of companies listed on the stock market.

Mr McKinnon expects that Mr Trump’s wish will be granted, and this is likely to create higher inflation in the US, and this will cause the gold price to rise.

The US central bank is due to issue a policy statement on Wednesday (June 19), which will give an insight into its plans for the coming months.

Mr McKinnon said: "In recent months, President Trump seems to have interpreted market levels as a real-time opinion poll on the competence of his administration. It's easy to see where he is coming from - after all the mantra of President Clinton's original campaign was 'it's the economy, stupid.'

"The trouble is that overall market levels generally do not reflect the current fortunes of the economy. Market levels, in fact, better reflect the degree of confidence in the aforementioned 'disruption' bubble.

"As we expect this bubble to deflate, we think it is highly likely that President Trump's vociferous campaign for the US Federal Reserve to cut interest rates and print more money will ultimately prove successful."

He added: "We expect our gold miners to be one of the principal beneficiaries of this shift in monetary policy.

"Whereas the value of paper currency is eroded by the unrestrained printing of new money, gold has historically maintained its purchasing power over long periods of time. We also see opportunities for long term investors in many areas overlooked in the current environment."

His comments are contained in the half-yearly report of the trust, released to the stock market this morning (17 June).

The trust lost 0.1 per cent in that six month period to the end of April, much worse than the performance of the market as a whole.

The fund manager said this is because the trust has invested in many unfashionable stocks that will perform better when market conditions change.

david.thorpe@ft.com