Gold is currently trading around the $1,142 a troy ounce mark, far off its peak off $1,900 per ounce in August 2011 and dropping to a 4.5-year low on the back of a soaring dollar and expectation of further stimulus from the world’s largest economies.
The price of the yellow metal started to fall heavily at the end of October as a stronger outlook for the US encouraged investors to leave perceived safe havens such as precious metals behind.
Commodities analysts at Capital Economics said in a recent note: “The prices of precious metals fell in October, except for palladium which regained some lost ground after a weak September.”
“A perfect storm of events including the strength of the US dollar, a more hawkish tone in the Fed’s latest statement, a recovery in US equity prices and robust US third-quarter GDP data led to an absence of safe-haven demand for gold. Prior to this, gold had been resilient for much of October despite US dollar strength.”
FE Analytics shows the average fund that focuses on gold mining equities fared even worse than the metal itself.
While the S&P GSCI Gold Spot index is down 8.16 per cent since 15 October, the average gold fund in the IMA universe has dropped 15.30 per cent.
As the graph below shows, gold funds have had a torrid 2014. The average gold equities portfolio rose some 23.25 per cent between the start of the year and 17 March, before moving up and down until mid-August.
Since then the average gold fund has dropped 30 per cent, leading to a year-to-date loss of 15.28 per cent. In contrast, the S&P GSCI Gold Spot index is down just 1.21 per cent while global equities represented by the MSCI World have climbed 8.31 per cent.
Performance of average fund vs indices over 2014
Source: FE Analytics
Gold equities, of course, have been weak for a number of years with our data showing the average portfolio as making a 68.37 per cent loss over three year - around half the 34.56 per cent fall in the S&P GSCI Gold Spot index.
Over the year to date, the losses posted by the seven funds covered by our research ranging from just under 6.5 per cent to more than 28 per cent.
The £3.4m WAY Charteris Gold & Precious Metals fund has been the worst performer over 2014 to date with a fall of 28.30 per cent.
Performance of fund vs average fund and index over 2014
Source: FE Analytics
WAY Charteris Gold & Precious Metals, which is managed by Ian Williams, has done better than its gold-focused peers over three years with a fall of 55.19 per cent.
But the past three months have been especially tough with the fund shedding 37.12 per cent.
The fund focus on gold and precious metal mining companies with market capitalisation in excess of $500m, while around one-quarter of the portfolio is held in mid and small-cap gold miners.
The bulk of the fund - 93 per cent - invested in Canadian miners such as Eldorado Gold, Mandalay Resources and Semafo. It has 13 per cent in UK firms and 3 per cent in the US.
Second in terms of losses is Peter Webb’s £1.6m SF Webb Capital Smaller Companies Gold fund, which has lost 23.75 per cent so far. Over three years, it’s down 79.81 per cent.
In his latest investor update, Webb highlighted the pressure gold is under and argued the need for gold miners to attract investors through an improvement in fundamentals, rather than their link to the safe haven.
“During a period of enhanced volatility in markets and heightened global political unrest one would expect gold to offer a safe harbour from the many issues that are at the forefront of investors’ minds. However, this has not been the case and the shiny metal appears to be friendless,” the manager wrote.
“Investors appear to have chosen the dollar as their safe haven and it is difficult to paint a scenario that will change their position right now. With investor interest in mining shares at a low ebb it is really down to management of companies to deliver the numbers that force buyers to return rather than hope on a whim that suddenly all will change and the good times roll on back.”
Our data shows that Angelos Damaskos' (pictured) £8.6m MFM Junior Gold fund has lost 13.81 per cent year to date, CF Ruffer Baker Steel Gold is down 13.78 per cent, FE Alpha Manager Bradley George and Scott Winship's £40.1m Investec Global Gold fell 11.41 per cent and Robert Lyon and Ani Markova's £36m Smith & Williamson Global Gold & Resources shed 7.15 per cent.
Evy Hambro's £902.5m BlackRock Gold & General fund was the best performer year to date with a 6.43 per cent fall.
Performance of fund vs average fund and index over 2014
Source: FE Analytics
It appears on the FE Research team’s Select 100 list of preferred funds, where it is noted that Hambro tends to take on less risk than his competitors.”
The FE Research team said: “With new management now in place in many top mining companies, Hambro expects that discipline will come back and capital will be returned to shareholders. This should take time and the gold price is likely to remain under pressure.
“To protect the fund from further downside, the portfolio is now less exposed to small mining companies and more to gold royalties that are more resilient regardless of economics.”
