The JPM Natural Resources fund has boosted its gold hoard from all-time low levels following ongoing concern for oil and copper prices.
Run by Neil Gregson and his commodities team, the £760m fund is trying to position itself in a market with “appalling sentiment”.
Portfolio manager James Sutton says: “We have increased our gold position from a low of 13 per cent to close to 20 per cent of the fund, but we are not looking to add further to the position.”
Drastic falls in the price of copper, together with a tumbling oil price has meant there is little room for error in the positioning of the portfolio, although fund manager Gregson remains confident oil prices will recover towards the end of 2015.
“We believe that the oil market will struggle to find an equilibrium over the short-term because of excess supply, but that towards the end of 2015, markets will rebalance and prices will recover.”
Despite copper suffering the biggest single day decline in over three years last week, he is focussing on an “encouraging” long-term view.
“We retain our constructive view on base metals, including copper. Next year is the last year of significant copper supply growth after which we expect tightness, given the lack of investment in ‘greenfield’ projects over the last three-to-four years,” he says.
The fund will continue to seek out companies in positions of strength in a bid to ride out the oil market instability.
“Despite the large falls in oil prices, we retain exposure to the highest quality exploration and production companies around the world. Half of this exposure is in North American unconventional producers with the lowest cost profile, the most promising acreage and the strongest balance sheets,” he adds.
The expansion of capacity by iron ore producers Rio Tinto, and Vale has led to a relatively bleak outlook in this sector.
“This excess supply is too much for the Chinese steel producers to absorb given the sluggishness in the Chinese property sector and the drop-off in Chinese fixed asset investment,” Gregson says.
Capital Economics head of research Julian Jessop supports the view of a gradual rise in gold prices.
He adds: “The resilience of gold in the face of a surging dollar and collapsing oil price supports our view that the precious metal will recover further this year and next. The prospects for silver look brighter too. Overall we are happy to reiterate our gold price forecasts of $1,300 and $1,400 for end-2015 and end-2016 respectively, both well above the consensus.”