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A golden opportunity

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Gold prices ran up to USD1,032.70 per oz in March 2008, following fears of inflation as oil prices ran up to USD147 per barrel. Following the credit crunch, gold subsequently fell to a low of USD682.41 in October 2008. It has currently rebounded and is trading around USD1,200.00 per oz.

With the current global economic uncertainty, Central Banks around the world have co-ordinated their efforts in combating deflation. Deflation is very difficult to bear, especially when their countries are heavily indebted. As a result, Central Banks are using all their policy tools at their disposal to prevent deflation. So far, a number of them have effectively brought their interest rates to zero and hence do not have any more ability to influence monetary policy. Some countries have also eased fiscal policy. A number of them have also started using more unconventional methods, such as quantitative easing. Amongst them are the US, UK, Swiss and European Central Banks. In time, the tide of currency devaluation will show itself up in the gold price.

Golden Prospect Precious Metals Ltd was set up in November 2008 with the express mandate of participating in the rise of gold. New City Investment Managers took over the investment management mandate of Golden Prospect from Ambrian Asset Management in September 2008.

New City Investment Managers was set up by Richard Lockwood in 2003 with a view of taking advantage of the bull market in commodities. Richard has freely admitted that he is a gold bull. “All this printing of money will eventually lead to a debasement of currency; this is definitely bullish for gold”.

The fund is managed by John Wong and Will Smith. John worked at Ruffer Investment Management before joining New City, while Will has extensive experience at UBS; together they have significant experience of gold – the metal, equities, convertibles and warrants.

Over the first few months of taking over the fund, they have re-structured the fund away from small cap explorers into stronger large and mid cap producers. “Over the medium term, with capital being extremely scarce, we need to ensure that the companies that we invest in have strong balance sheets and are able to take advantage of the opportunities which might arise”. Smaller explorers with good projects but running short of cash are finding themselves in tough positions and end up being taken over by larger players often at a discount to their true value.

The pair also like the promising smaller juniors with significant sized projects but admits that they are only dipping their toes into them at present. “As the gold bull markets develop and when risk appetite returns, then some of these smaller names will be the place to be as they will get re-rated.” The pair are keeping a long list of these promising plays in their back pocket, waiting for the right time to buy them.

One of the biggest advantages of the fund is their ability to change their portfolio to take advantage of market opportunities as a function of their size. “We can move into some of these smaller names without moving the price of these stocks ourselves, which can be an issue for big gold funds like Blackrock”.

New City Investment Managers is a wholly owned subsidiary of CQS Management, the global asset management firm with over USD6bn assets under management and offices in Jersey, London, Hong Kong, New York and Geneva.

Golden Prospect is listed on the Channel Islands Stock Exchange and is also traded on the London Stock Exchange.


Article originally publised in Issue 18 (Winter 2009-2010) of the Channel Islands Stock Exchange Bulletin Board magazine



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