Star fund manager sticks to $1600 gold troy ounce prediction despite slump

Despite gold falling to below $800 for the first time in nine months on Friday and hitting his fund's performance, AAA-rated star US equity manager François Mouté is standing by his prediction of the gold price reaching $1600 per troy ounce in the next year.

Mouté (pictured below) has a number of gold mining companies in the top ten holdings of his $1 billion ABN AMRO US Opportunities fund. As the gold price has fallen in recent weeks, reaching $787 per troy ounce on Friday last week, so have the values of some of his top holdings. This has resulted in Mouté suffering a rare period of underperformance; his fund has lost 11.4% in the last four weeks while the S&P 500 index has risen 4.5%.

'I am disappointed to see gold below $800, and I am even more disappointed to see the exaggerated decline in the price of gold mines,' AAA-rated Mouté told Citywire. 'Mines are selling at 1.1 times NAV, when they normally trade at anywhere between one and three times NAV.'

'The falling oil price was one of the factors that precipitated the weakness in gold,' he says. 'But I am still using as a basic yardstick the fact that an ounce of gold should be 16 times the price of a barrel of oil. So a falling oil price is not that worrisome, as even if oil goes to $100 a barrel, that still does not change my 12 month view of gold reaching $1600 a troy ounce.'

Gold, regarded as a natural hedge against the dollar, has also suffered as the dollar has rallied. But Mouté thinks this recovery in the dollar will prove short-lived.

'The recovering dollar has been another factor putting pressure on gold,' he says. 'But the dollar is not going much further up. So I think the problem caused by the dollar is essentially complete.'

The basis for his bullishness on gold is a negative real interest rate environment. He points to the US headline CPI figure of 5.6% combined with the far lower levels of interest rates for fed funds and US treasury bills (2% and 1.8% respectively).



'We have negative real interest rates like we have not seen since the seventies, so I think fundamentally there is a strong background for gold in particular, but also commodities in general. I am patiently waiting for the price to return.'

Silver exposure is also a significant feature of Mouté's portfolio. The silver price has also fallen, leaving it extremely undervalued according to the veteran Frenchman.

'Silver at $12.50 is like having gold at $600. Silver is very depressed at the moment,' he says.

Mouté has increased his funds' net exposure to the S&P 500 to 72% in recent weeks by cutting back on his use of futures in a bid to not lose too much short term relative performance. But the long term is his priority, he says.

'We are having a rough time for the moment,' he says. 'I am sorry and sad to see that. But back in August 2007 and May 2006 we had similar difficulties and we recovered. I am keeping my eye on the long term.'

Indeed, Mouté's long term figures remain outstanding. Over five years the ABN AMRO US Opportunities fund has returned 57.3% compared to a rise in the S&P 500 TR index of 16.5%. He remains by far Europe's top performing fund manager in the North American equity sector over both three and five years.