Gold to ‘blow through’ record high this year: Fund manager

Gold prices will “blow through” a record high this year as inflation accelerates amid a surge in government spending, said Mark Johnson, the manager of the US$1 billion USAA Precious Metals and Minerals Fund.

“This will be a positive year for gold,” Johnson said in an interview in New York. “With all the liquidity that has been pumped into the system, there’s definitely going to be inflation. For us, it’s not a question of if gold will rise, but when.”

The US government and the Federal Reserve have spent, lent or committed $12.8 trillion to help stem the longest recession since the 1930s. Gold futures rose to a record $1,033.90 an ounce in March 2008 as the dollar slumped, spurring demand for the precious metal as a store of value. This year the price peaked at $1,007.70 on February 20.

“The Fed has promised liquidity on the assumption that they will be able to turn on a dime and drain it back out of the system,” Johnson said. “It’s going to be harder than that.

“They will want to be sure that the economy is well-established before they drain the liquidity. It’s going to be inflationary. Gold will blow through that record before the year is out.”

The price of gold has been capped as investors sold the metal to raise cash and the “recession causes a deflationary environment,” said Johnson, who has managed the San Antonio-based USAA fund for 15 years.

‘Out of deflation’

“We are going to be moving out of deflation and into inflation soon,” Johnson said.

Shares in gold-mining companies may outperform bullion prices this year because of lower production expenses, Johnson said.

“Last year the miners lagged gold as higher input costs cut the margins,” Johnson said. “Now, we have lower oil prices and other lower costs that are going to be positive for the margins. We are pretty positive on the miners.”

Johnson said his fund is focusing on buying equity in so-called junior-mining companies and firms focused on exploration, including Englewood, Colorado-based Anatolia Minerals Development Ltd. The shares of Anatolia have almost doubled this year on the Toronto Stock Exchange.

thanh nien, bloomberg

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