Nov. 17 (Bloomberg) -- Hinde Capital Ltd.’s hedge fund gained 44 percent this year after selling its holdings in the biggest mining companies to buy gold.

The Hinde Gold Fund made the switch in October 2008, having previously held equal weightings in equities and gold, according to Ben Davies, co-founder of the fund. He declined to say which stocks the fund had sold.

Gold is heading for a ninth annual gain, the best run since at least 1948. The metal rose 29 percent this year, and traded at a record yesterday, as a weakening dollar spurred investors to seek a store of value. Some also bought gold to guard against inflation. U.S. consumer prices will expand this quarter after three contractions, a Bloomberg survey of 63 economists showed.

“Gold is as undervalued as in 2001 and 2002,” Davies said by phone from London. “We’re in an early stage of inflation.”

The switch from equities to bullion limited the fund’s loss to 18 percent last year, Davies said. Gold will comprise at least 75 percent of the fund this year, with holdings in smaller miners accounting for a further 15 percent, he said.

Hinde’s shareholdings include Rubicon Minerals Corp. and International Tower Hill Mines Ltd. The fund’s bullion is stored in Zurich.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, reached a record 1,134 metric tons in June. At the time, it exceeded Switzerland as the world’s sixth-largest gold holding.

‘Short-Term Liquidation’

“There will be, from time to time, short-term liquidation in ETFs,” Davies said. That will be outweighed by purchases by central banks, he said. Central banks were net buyers in the second quarter for the first time since at least 2000, according to the World Gold Council.

Davies co-manages the Hinde Gold Fund with Mark Mahaffey. Both previously worked at RBS Greenwich Capital in London. The Hinde Gold Fund has returned 26 percent since it started in October 2007.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested.

To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net

Last Updated: November 17, 2009 01:33 EST