The outgoing fund managers of Golden Prospect Precious Metals (GPM), last year’s best-performing investment company, remain confident about the portfolio’s prospects despite a 22.7% slump in net assets last month caused by the turmoil in the Middle East.
Keith Watson and Robert Crayfourd, who are leaving Manulife CQS for Tufton Investment Management, said counterintuitively gold and precious metals sold off sharply in March with the index-tracking VanEck Junior Gold Miners exchange-traded fund (ETF) sliding 21.7% in sterling terms.
They said this was driven primarily by rising inflation concerns as the oil price soared 44% to $104 a barrel after Iran blocked the Strait of Hormuz in response to devastating air strikes from the US and Israel.
Expectations that interest rates would rise, rather than fall, weighed on gold, which fell 11.6% from $5,279 to $4,668 an ounce, having been left vulnerable to a short correction after surging to record highs in February.
Outflows from precious‑metal mining ETFs added to the pressure on mining company shares held by the managers.
GPM shares fell 19% during the month but were still up 75% over one year and 165.5% over three years at 31 March. The company’s board is considering whether to follow the managers to Tufton, as are their other listed funds, Geiger Counter (GCL) and CQS Natural Resources Growth & Income (CYN).
This month the shares have rallied 18% from 87.6p to 103.5p with the managers confident that for the most part, the 38% advance in gold over the past year would more than offset miners’ increased energy costs.
Nevertheless, the pair have kept the £112m closed-end fund’s gearing, or borrowing, low at just 0.8% and focused on assets less exposed to volatile energy prices, according to the latest factsheet.
Despite the USA’s crushing military dominance, the managers were sceptical about US President Donald Trump’s claims of success in the two-month war, believing the global economy would suffer and consequently precious metals benefit.
“Whilst the US is claiming a military success in Iran, it is hard to see which objectives have been achieved. The Iranian regime remains very much in place despite the death of Ayatollah Khamenei, with the hardline IRGC military faction appearing to have taken the lead. The removal of their enriched uranium, which was a prior stated objective, remains buried deep in a mountain at Isafhan, following prior US/Israeli attacks, and Iranian resistance has proven very effective through its non-centralised use of drones and missile launch sites,” they said.
Watson and Crayfourd said the key outcome for commodity markets was the closure of the Strait of Hormuz and with it the loss of around 13m barrels of oil a day, a 20% loss of global liquified natural gas and other essential ingredients into fertiliser or acid used in the recovery of metals like copper.
“This will create inflationary impulses over the coming months, reducing the likelihood of rate cuts, but may also have negative implications for the global economy, which we believe should be supportive of precious metals’ defensive properties,” they said.
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