Fund Selector Asia
The price of gold has plunged more than 15% since the start of the Iran war on 28 February, after a spectacular performance last year. It peaked at a record $5,594 per troy ounce in January, but despite brief rallies on hopes of an early resolution to the conflict, the precious metal has struggled to retain its status as either a safe haven or a speculative punt.
Gold is often viewed as a beneficiary of geopolitical uncertainty, but other factors have acted on the precious metal this year. First, the US is a net energy exporter, which has improved its terms of trade and boosted the dollar, forcing short-sellers to cover their positions; and second, a shift in monetary expectations from interest rate cuts to a hawkish Federal Reserve stance to counter inflation has encouraged investors to switch to yield-bearing bonds.
Finally, the unwinding of de-dollarisation trades, such as international equities, and, most significantly, highly leveraged gold bets by hedge funds through derivatives (including ETFs), rather than physical gold holdings, has turbo-charged the recent price decline.
Indeed, for many gold bugs, hedge fund speculation, rather than central bank activities, investors’ demand for a physical asset during uncertainty, or consumers’ penchant for gold jewelry, is the main determinant of gold’s oscillating behaviour.
“The gold price’s strong rally last year was largely driven by leveraged hedge fund buyers of derivatives; long-only institutions have been absent,” Ned Naylor-Leyland, manager of the $2.86bn Jupiter Gold & Silver fund, told FSA in an interview.
“However, institutional money is likely to pour into bullion as a risk-free asset during a period of rising public fiscal deficits, loose monetary policy, and currency debasement. They will be suffering pain in their portfolios and will look for a safe haven.”
“When this happens, those hedge funds that have recently deleveraged and closed their gold positions due to recent expectations that further interest rate cuts are unlikely in the near future, will re-leverage back into gold,” Naylor-Leyland (pictured) said.
In other words, the factors that led to gold’s rally remain, and their force will not only re-emerge but be boosted by a wall of institutional allocations to the yellow metal.
Naylor-Leyland’s strategy generated a 217.12% total return in 2025, according to FE fundinfo, but slumped 29.72% in March this year. It is a “high conviction” portfolio of around 66 individual holdings, 80% of them gold and silver mining stocks.
Naylor-Leyland retains his faith in Australian and American miners, believing they are significantly undervalued. He pointed out that in 2018, gold-mining company shares traded at 1.5 times net asset value (NAV) and had 15% free cash flow; now they trade at less than 1 times NAV with 50% free cash flow.
“Gold and silver mining company stocks are among the cheapest, trading at high NAVs and with substantial free cash flow. Miners also have a record of share buy-backs and paying high dividends. Investors will recognise their attractions compared with other overvalued sectors,” Naylor-Leyland said.
“In addition, silver has dual properties as both a low-risk refuge and as a key component of the technology revolution.”
Certainly, the oil crisis will have an impact. But “grid power rather than diesel for trucks is a far more significant input for miners. Moreover, the major issue for their operations is the impact on the supply chain.”
Jupiter Gold & Silver fund versus sector and FTSE Gold Mines index
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