Baker Steel Plans Gold Fund After 44% Gain, Expects Record Prices in 2011

Baker Steel Capital Managers LLP, a London-based firm managing about $1.7 billion, plans a new gold fund, predicting another year of record prices for the metal.

The fund will hold physical gold and shares of producers worldwide, Managing Partner David Baker said in an interview. He’s seeking as much as $200 million from investors, mainly in Europe, and may start buying assets for the fund next quarter.

The firm’s existing Baker Steel Gold Fund climbed 44 percent in the first 11 months as bullion jumped and shares of Toronto-listed Great Basin Gold Ltd. and Nevsun Resources Ltd. surged. Baker, a metallurgist, expects gold will rise as miners struggle to discover fresh fields and Asian central banks bolster reserves.

“Gold isn’t in a bubble,” said Sydney-based Baker, who founded Baker Steel Capital Managers in 2001. “We’re not finding enough to grow supply. We’re having to go to more marginal projects and third-world countries where there are more risks.”

Gold has gained 25 percent this year, reaching a record $1,432.50 an ounce on Dec. 7. Baker, a gold analyst in Sydney and London in the 1980s, said the price may climb past $1,800 in 2011.

Investors often turn to gold to hedge against inflation. The price jumped after most major currencies strengthened this year against the dollar, the world’s reserve currency, while the Federal Reserve kept borrowing costs near zero and injected money into the economy with a fresh round of bond purchases.

Asian Buying

Baker, 51, said Europe’s debt crisis may force the European Central Bank to print money, fanning inflation. In China, where consumer prices rose at the fastest pace in 28 months in November, the central bank must be considering buying gold over the U.S. dollar, he said.

“Something has to give and the only thing that’s giving is gold -- it’s going up,” he said in the Dec. 15 interview in Sydney. “As soon as other Asian central banks see China doing something, they’ll do it as well.”

Of 21 Asia-Pacific countries, only Pakistan has cut its gold reserves in the past year, according to data compiled by Bloomberg. In China, gold imports jumped almost fivefold in the first 10 months from the entire amount shipped in last year, the Shanghai Gold Exchange said Dec. 2. Most of it was made into mini gold bars, which Chinese investors like to hold, the exchange said.

Baker said 71 percent of the companies held by the Baker Steel Gold Fund have started producing gold, and the largest concentration of mines is in Africa. Investing in the miners, as well as the physical metal, gives the fund the chance to outperform bullion.

Nevsun, Resolute

Vancouver-based Nevsun Resources, whose stock has more than doubled this year, has said it expects to begin gold production at the Bisha mine in Eritrea in the final quarter. Great Basin Gold, which said two months ago the start-up of its South African project is “on track,” climbed 62 percent. The stocks are among the largest 10 holdings in the Baker Steel Gold Fund.

Perth-based Resolute Mining Ltd., the fund’s biggest holding at the end of October, has climbed 26 percent in 2010. The stock, which is trading at 17 times estimated earnings, is “ridiculously cheap,” according to Baker.

To contact the reporter on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net