BlackRock Gold & General Accumulation Units

The year 1848 marked the beginning of the great gold rush. People travelled from around the globe to California in pursuit of the great global currency. Some profited and not necessarily just from the gold itself, entrepreneurs and salesman arrived to ply their trade and global growth was thriving.

Turn the clock forward 160 years and we are now looking at a very different scenario. With global growth shrinking and the US and UK’s public debt entering unchartered waters we feel there are two potential paths; both could produce the same outcome – a rush for gold.

The first is a deep and prolonged recession, where things get worse, more institutions fail and governments pump even more money into the failing economy. This will debase currencies, people will turn to gold for safety as it can’t be devalued by politicians so should rise in value as demand increases.

The second possibility sees the opposite reaction. World governments having thrown everything, and more, than they have at the global economy – revive their patient – but in doing so have gone too far, the world is awash with money and awakes with rising inflation. Many investors see gold as a hedge against inflation and, if this does happen, it is likely the demand for gold will rise, pushing the price higher.

How to take advantage of a gold rush

It is possible to buy physical gold bullion from a broker, however we believe there is a better way to take advantage. Gold mining shares are completely out of kilter with physical gold and the share prices of gold mining companies have fallen sharply recently.

Why? It’s never a one way bet. Risk aversion has hit stock markets and gold stocks have been sold off, especially as many have an emerging markets focus. In addition institutions and investors looking to raise cash have taken profits following strong performance over the last few years.

The historical trend is for a 1% change in the price of gold bullion to trigger a 3% move in the value of shares in gold-related companies. There are no guarantees as gold shares have lagged since the summer, but if that trend reasserts itself investors could benefit as share prices could make up the lost ground.

Given that we have witnessed the biggest financial upheaval in living memory, it could be beneficial having some exposure to gold in your portfolio. We feel the BlackRock Gold and General Fund, which is a specialised fund investing mainly in the shares of gold mining companies, is well placed to benefit from the current upheaval and any subsequent rise in the value of gold.