Most investors know that gold has traditionally been used as a method of storing and protecting value against inflation.
Ani Markova, a member of the investment team that manages the Smith and Williamson (S&W) Global Gold and Resources fund, said, however, its research suggested that historically gold had also acted as a hedge against deflation.
With economists worldwide displaying a distinct lack of consensus on the inflation/deflation debate, it is interesting to know there is an asset that can cope with either eventuality.
Toronto-based Ms Markova said: “This fund is for anyone who wants to purchase insurance against inflation or deflation, or currency devaluation. Gold is viewed as a global benchmark for wealth preservation and demand has been strong for obvious reasons.”
It invests predominantly in mining firms, thus providing exposure to silver, platinum, diamonds and base metals in addition to gold.
Ms Markova said: “Historically, companies in the sector have not been particularly disciplined in their corporate behaviour, but they are now starting to run their business more like the established companies with much greater focus on cash flow and return on investments.”
The portfolio extends to some 114 holdings and also has exposure to physical gold bullion via a holding in the Central Fund of Canada.
Although modest in size at about £12million, the S&W fund is run on the same basis and by the same team as the £385million AGF Precious Metals fund in Canada.
Given recent performance, it is unlikely the UK version of the fund will stay small for long. Over the five years to March 31, the fund returned 213.8% growth, compared with a 149% return from its benchmark, the S&P/TSX Global Gold TR index.
Investors reluctant to invest in something that has risen so meteorically might be reassured by Ms Markova’s assertions about the sector.
She said: “Gold bullion has been performing like a quasi-currency recently with all the uncertainty surrounding the euro, especially in light of the massive amount of funding that could be required to bail out the struggling European economies. We believe we are in a multi-year bull run for precious metals.”
Barry O’Neill is a chartered financial planner with Thomson Shepherd. Contact him on 01224 619215