Pimco Fund Expands Gold Holding on Outlook for Inflation

Pimco Commodity Real Return Strategy Fund has expanded its holding of gold as a hedge against inflation, anticipating further moves by central banks to spur economic growth, said Nic Johnson, the fund’s manager.

The $20 billion fund increased its gold holdings to 11.5 percent of total assets from 10.5 percent two months ago, Johnson said today in a telephone interview from Newport Beach, California. The commodity fund is part of Pacific Investment Management Co., which also owns the world’s largest bond fund.

“We think gold is going to perform in a positive correlation to changes in inflation,” Johnson said. “We see higher inflation because of rising commodity prices, unconventional monetary policies and increasing sovereign debt.”

Gold rallied in New York today to the highest price since May 2 after Federal Reserve policy makers issued the minutes from their July 31-Aug. 1, which indicated the Federal Open Market Committee may expand monetary stimulus to bolster the economy. Gold futures for December delivery rose as high as $1,658.20 an ounce on the Comex.

The precious metal surged 70 percent from the end of December 2008 to June 2011 as the Fed kept borrowing costs at a record low and bought $2.3 trillion of debt in two rounds of so- called quantitative easing. Gold advanced in the past two months amid speculation that China, the U.S. and Europe may take more steps to boost economic growth.

“We are tactical and will look for attractive dips” in prices to add to the fund’s holdings, Johnson said, adding that a drop near $1,500 would prompt some buying.

To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net