HSBC Global Asset Management’s $2.2 billion Absolute Return fund reduced its gold holdings by more than a half, while cutting risk exposure in the portfolio to the lowest ever, according to Charles Morris, the fund manager.
The fund cut its bullion holdings to 6 percent at the end of November from 15 percent six month ago, Morris said. The fund had 22 percent in cash, with the U.S. dollar being the favorite currency, and 31 percent in government bonds, he said.
“Our portfolio risk exposure is extremely low, the lowest it’s ever been, because we think that the risks in the next few months are high,” Morris said in a telephone interview from London. “It’s not until we get evidence there is a meaningful sustainable macro recovery that we are going to increase risk in our portfolio.”
Risky assets, including equities and commodities, may bottom out in the second half of 2012, Morris said. Slumping growth is the biggest challenge to commodities in the short term, while in the longer term falling infrastructure spending in China is a concern, Morris said. Gold and oil will be the strongest subsectors in the sector for the next several years, he said. Bullion may rise to a new record in late 2012, leading gains among commodities, he said.
Spot gold, up 12 percent in 2011, is heading for an 11th year of gains as investors seek protection from weaker currencies and the European sovereign-debt crisis. It traded at $1,593.07 an ounce by 4:12 p.m. in London compared with the all-time high of $1,921.15 on Sept. 6
Holdings in exchange-traded products backed by bullion dropped from a record yesterday, falling 13.3 metric tons to 2,347.5 tons, data compiled by Bloomberg show. That’s the biggest decline since Aug. 24.
“It’s not that we are bearish on gold, it’s just that gold got very overbought a couple of months ago,” Morris said, adding that he expects gold prices to “consolidate” for 12 to 18 months before reaching a new high.
The volatility in silver is “horrendous and it needs some time to rest” before it becomes attractive again, Morris said. “Also, we’d like to see the gold-silver ratio closer to 60 than the current level,” he said. An ounce of gold bought 53.6 ounces of silver in London today. The ratio has averaged 44.8 this year, compared with a five-year average of 57.3.