Smith & Williamson’s Ani Markova believes the US Federal Reserve’s ‘enormous’ amount of quantitative easing will boost gold in 2013.
The manager of the firm’s Global Gold and Resources fund said in the year following the US election, bullion and gold mining stocks tend to outperform.
She said: ‘We have also seen what the Fed is going to do – its balance sheet will continue to grow. Yesterday Bernanke said he will print $85 billion a month until unemployment comes below 6.5% - this is huge, enormous, a 40% increase of the Federal balance sheet.’
Markova added that while this is ‘very bearish for the US dollar,’ it is positive for gold bullion, shrugging off the flat reaction seen in American futures following last night's Fed announcement.
Huge demand from China’s central bank will serve as another boon for the price of bullion next year. She said the country is aiming to diversify its foreign reserves and has a desire to make the renminbi a convertible currency.
In order to match America’s bullion holding, Markova said around three years of gold mining will be required for China to meet that aim.
‘So pent up demand …I’d rather be a buyer of bullion when China is buying - they must think prices are really low compared to where they could be over the next couple of years,’ said Markova, who is currently ranked the UK's best gold manager out of a six-strong peer group.
Although gold mining shares have not fared as well this year versus bullion, Markova said gold royalty stocks – firms that finance gold miners in exchange for payment in the future – have had a fantastic year.
Franco Nevada, which her Global Gold and Resources fund owns, has risen 43% this year, Markova said.
‘This is a massive outperformance and certainly the royalty model has attracted a lot of attention,’ said Markova. ‘This royalty model offers increases in revenues from mines that come on stream without the headache of running companies.
‘But these stocks are expensive,’ she warned. ‘Valuations are at elevated levels and I would be cautious about putting new money into them at this stage.’
She added: ‘I see more opportunities on a valuation basis outside the royalty space.’
Over three years to 12 December, the fund has returned 9% versus the benchmark’s -5.1%.