Though bullion has slid down from its near $2,000 high in 2012 to $1,634 at time of writing, the analyst believes the recent positive data coming out of the US may be a false dawn.
“Continued improvements in economic data and the resulting rise in interest rate expectations and the US dollar remain headwinds to near term gold price outperformance,” said Arnold.
“However, the medium term outlook remains constructive for gold, with historically low interest rates, abundant global liquidity, inflation risks from persistently elevated oil prices and now questions about the sustainability of the recent US employment improvements likely to be supportive of longer term gold price gains.”
“Indeed, speculative long positions on comex [commodities exchange] bounced off their 3-month low last week.”
Bullion is best accessed through an ETF – such as ETFS Physical Gold – which attempts to match the gold price in the same way that a passive fund tries to track an index.
According to FE data, ETFS Physical Gold has returned 70.54 per cent over a three year period, falling short of the gold price by just 2.52 per cent.
Performance of ETF versus index over 3yrs
Source: FE Analytics
The vehicle is extremely cheap, boasting a total expense ratio (TER) of just 0.39 per cent. While fund manager Chris Bailey, who heads up the £175m Close Conservative Portfolio, is also optimistic about future projections for the gold price, he says he’d much rather hold gold equities.
“I’ve been bullish on gold since 2007 which has served me very well, and I’m still positive now – mostly because I think there’s going to be a lot more quantitative easing” said Bailey. “I think $2,500 is a very realistic medium term outlook.”
“However, I see a big opportunity in gold equities, and have been building positions in the likes of Randgold and Newmont – the only gold miner on the S&P 500.”
“Gold equities had a tough year in 2011, but now some of these companies are looking very cheap. If you can handle the volatility, I think they can have another very strong run. If gold goes to $2,500, then Newmont’s yield is going to jump to 7 per cent. More realistically however, it’ll hold some of this income back and the share price could double, with a yield of 3.5 per cent.”
“At present, very few things are as attractive as a company like this.”
Bailey’s Close Conservative Portfolio has a 10 per cent weighting to gold, while his Close Growth Portfolio has a 14 per cent weighting. All of Bailey’s gold exposure is now in gold equities.
If you have a high conviction position on gold equities, there are seven pure gold funds in the unit trust and OEIC universe to choose from. FE Alpha Manager Evy Hambro's £3.3bn BlackRock Gold & General portfolio is the largest and highest profile of the seven; according to FE data, it is one of the best performing funds in the entire unit trust and OEIC universe over the last decade, with returns of 366.85 per cent.
Performance of funds over 3yrs
Source: FE Analytics
Smith & Williamson Global Gold & Resources is also a viable option. It's returned nearly twice as much as Hambro's vehicle over a three year period, thanks largely to its smaller cap focus. However, it's more volatile than BlackRock Gold & General, and lost significantly more in the down market of 2011.