Mouté: QE2 to cause another gold boom

Star US equity manager François Mouté says the gold price will go 'much much higher' as a result of QE2, believing the rise could be similar to the gold bull market of 1971 to 1980.

Mouté has long been a gold bull, and his US equity funds BNP Paribas L1 Opportunities USA  and Neuflize USA Opportunites  have benefited greatly from a huge overweight in the sector in recent years. But now he feels US policy has given him more confidence in his stance than ever.

'The latest statements from Ben Bernanke vindicate our position,' he told Citywire. 'He indicated the solution was growth in nominal GDP. Nominal is the key word, and to grow it quickly you need inflation. There is no question it will cause more inflation. It is something I have been saying for years, but it obviously carries more weight when Bernanke says it.'

He points out that the bond market has reacted negatively to QE2, despite its goal of buying back treasury securities to drive long term bond yields down. 'I do not think QE2 will succeed in bringing long term rates down. They can set interest rates, but the bond market is too big for them to control,' Mouté said.

He said the 'icing on the cake' for his investment strategy was when Robert Zoellick, president of the World Bank, recently said that it is logical for gold to once again be used an important indicator for monetary policy.

'This was a strong vindication for our long term policy and view that gold will go much, much higher,' Mouté said, adding that when compared to its historical price versus the level of debt creation, gold is very cheap.

'In order to use gold as a solution to the monetary problem, it will need to be much higher in price. Between 1971 and 1980, the price of gold went from $35 to $850. That gives you an idea of the kind of moves which could be ahead of us. The move has already started, but it is far from over. It will go a lot higher for a long time, but not in a straight line.'

Meanwhile, Mouté is bearish on his outlook for Europe - as well as for the US. He thinks that after the Greek crisis, far too many people thought that was the end of Europe's debt problems, but it was only the start of a domino effect which has now included Ireland and Portugal. Germany has to bear a huge burden in keeping the euro afloat, he thinks.

'One has to recognise that the island of prosperity that is Germany is becoming very isolated. It doesn't bode well for Europe. The euro is so political that it is beyond rational economic analysis. Speaking rationally, the euro should cease to exist, but it was a political construction from the start and so the fate of the euro will be a political one and not an economic one.'

Despite gold taking up a large portion of Mouté's portfolio, he is also investing in US-based firms which can continue to benefit from Asian growth, without suffering too much from the sluggish economies of the West. Minig machinery firm Bucyrus International is one such stock which has served him well, and this week became a takeover target of Caterpillar.

Mouté is ranked second out of 182 managers in the US equity sector over five years, having returned 47.3% while the average manager in the sector returned just 2.6%. He is A-rated by Citywire for his risk-adjusted performance.