Europe will be forced to sell its gold reserves to cover its debts and a resurgent China is poised to snap them up according to Close Brothers’ Chris Bailey.

The Chinese government is likely to start buying up gold soon according to Bailey, and the giant economy’s debt free position means a recovery for Chinese equities is inevitable.

He thinks that history has shown gold reserves equate to a strong economic position, and this combined with China’s balanced books make it the best place for investors’ money.

“Investors should follow the gold. Who has the gold has the power,” he said.

He added: “Current cash strapped European and western governments still have a lot of gold. Therefore I can see there being, effectively, a bail out to sort out their debt with China doing a big purchase of gold off them; and we are already seeing this happen.”

Bailey, who heads the Conservative, Balanced and Growth Portfolios, thinks quantitative easing across the West will not solve its economic problems, so investors must look to the emerging markets and especially China for growth.

“What we have seen in recent months is that global economy has stabilised and equity markets have gone up. But I think it is fair to say that QE3 hasn’t sorted the financial problem, it has just stopped it getting worse,” he said.

“The amount of monetary stimulus could push inflation to levels that are difficult to control. It comes down to the fact that there is too much debt in the system and until that is sorted this current uncertain environment in the west will continue.”

“But that is not the case in the emerging markets and especially China,” he said.

Bailey continued: “All this funny money or quantitative easing is good news for emerging markets, where the consumer continues to be so important. In very simple terminology, whose got the debt? The west. Who are the biggest creditors? The East.”

Performance of fund versus peer group composite since Sept 2010



Source: FE Analytics

Bailey has managed the Close Brothers Growth Portfolio since its launch in September 2010.

Since then, the fund has outperformed its IMA Flexible Investment sector. The fund has returned 20.10 per cent whilst its sector has returns of 11.68 per cent over the same period.

During his career in fund management, Bailey has beaten his peer group composite. The manager has returned 17.18 per cent whilst his peer group composite has returns of 11.46 per cent.