Funds round-up: Gold to hit $1,000 as stocks fall for 20 years
>>"I think there are some circumstances where the gold price could go to $1,000. Logically you could construct an argument where the gold price goes up by several times its current value," Hendry said.<<
By Justine Trueman
LONDON (Reuters) - The gold price could more than treble to $1,000 per ounce if western stockmarkets suffer from a 20 year bear market, says Hugh Hendry, the manager of the top-performing Odey Continental European fund.
"I think there are some circumstances where the gold price could go to $1,000. Logically you could construct an argument where the gold price goes up by several times its current value," Hendry said.
Hendry, who has invested in several gold mining companies through his hedge funds and the Odey Continental European fund (See Fund Fact Sheet), says a 20 year stock slump is not as strange as it sounds.
"I think the equities market will fall for 20 years. From 1929 it was 25 years before the market recovered and some stocks didn't come back for 40 years. When will we see 40,000 in Japan again?"
Hendry, a partner at Odey Asset Management, said it was 'ridiculous' that some market commentators think shares will bounce back in the next year or so.
"We've seen the biggest bull market in history and history demonstrates that the intensity of any bull market is more than matched by the intensity of a bear market. The S&P is on 37 times earnings. Bear markets end when stocks are on six to seven times."
Hendry is also investing in government bonds and says there is a bull market in risk-averse instruments with US and European bonds regularly making new highs.
However, despite recent share price rises, he is still very bullish on gold mining stocks.
He said South African mining stocks like Harmony Gold Mining HARJ.J and Durban Deep DBNOo.J , that suffered falls over the summer have now recovered and many stocks are still trading at reasonable prices.
He has been buying shares in Ashanti Goldfields AGC.GH at one times revenue and expects further stock price rises if the gold price keeps going up.
LACK OF HEDGING A GOOD SIGN
His bullish outlook on gold is partly due to the fact that many gold mining companies have stopped hedging against a fall in gold prices and are taking a positive view on prices for the first time in many years.
Even Barrick Gold ABX.TO , a Canadian blue chip famous for hedging the gold price, has been closing down some of its hedges as has AngloGold ANGJ.J .
"You want to own the unhedged gold producers because if the gold price rises their profits will rise dramatically," said Hendry.
However, he is less keen on holding gold bullion as he said gold bars have been confiscated by governments in the past and this could happen again if a government felt its currency was under threat.
The United States banned private ownership of gold bars from the early thirties to 1971 when the US got rid of the gold standard so that dollars were no longer backed by gold. France took a similar policy in the early 18th century.
A spokesperson for the World Gold Council said such a move would be unlikely these days with the move towards further de-regulation of markets.
"You can never anticipate what any government is going to do but I would think it would be extremely unlikely," she said.
The Odey Continental European Accumulation fund has returned 14.56 percent in the last year compared to a 21.51 percent fall in the AUTIF Europe (ex UK) index over that period. Over three years the fund has returned 29.80 percent according to data provided by Lipper, compared with the index's 19.87 percent fall.
Hendry's fund is also ranked first in the Europe excluding UK category on the Citywire Funds Insider database even beating star manager Anthony Bolton's Fidelity European Fund (See Fund Fact Sheet).
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