LONDON Oil and gold prices are likely to hit record highs later this year due to instability in the Middle East and recurring sovereign debt problems, a London-based fund manager said.
Angelos Damaskos, the chief executive of Sector Investment Managers, said its Junior Oils fund has been up by 35 percent so far this year.
"We are very optimistic about the oil fund given the performance of the first quarter. We think the rest of the year could continue with further re-rating," Damaskos said.
The fund, which specifically invests in small- to mid-caps in the upstream oil sector, fell 42 percent in 2011 along with a broader decline of share markets in the fourth quarter.
This year oil prices have risen to record highs in euros and pounds, exceeding 2008 highs, which has led to weak consumer demand for auto fuels, especially in the euro zone and the UK.
However, continuing instability in the oil-rich Middle East including Iran and Syria will keep oil prices high, while China's economy is still growing at a robust pace, and its policy to build strategic oil reserves will also support prices, Damaskos said.
He added that there was still room for oil stocks to catch up with the higher prices.
Brent crude was trading between $122 and $123 a barrel on Thursday.
"We think the range of Brent prices in the next 12 months will be somewhere between $110 and $150 a barrel again, depending on this Middle East situation," he said.
Industry demand for oil, including for power generation since the Fukushima nuclear disaster last year, will remain strong, Damaskos added.
His oil fund has about 51 million pounds ($81 million) of assets under management, including about 2 percent in cash. its share holdings include Premier Oil, Cooper Energy, Dragon Oil and Parex Resources.
Sector Investment's other fund, Junior Gold, has about 30 million pounds under management, with a weighting of about 20 percent in silver producers.
The gold fund has been down by 10 percent so far this year.
Spot gold was trading just above $1,600 an ounce on Thursday, far below its record high above $1,900 last year.
"It is a very good entry point. We think for the rest of the year we will see a very strong rebound," Damaskos said.
He expected gold prices to rise to $2,000 per ounce due partly to slow economic growth in industrialized countries and to a return in investors' focus to the euro zone's sovereign debt problems later this year. But it is unlikely to see a new peak for silver, he said.
"That is not very positive for the market but positive for gold. We still see gold keeping a fairly strong level at just under $1,700. Despite all this highlighted volatility and uncertainty, we still think gold is a preferred save haven asset," he added.
The holdings of the Junior Gold funds include Focus Minerals, Allied Nevada Gold Group and Spanish Mountain Gold Ltd. ($1 = 0.6300 British pounds)
(Reporting by Ikuko Kurahone, editing by Jane Baird)