September 8, 2009 / 4:08 PM / 11 years ago

Hedge fund eyes gold at $1,600, sells equities

LONDON (Reuters) - The price of gold could rise as high as $1,600 an ounce as investors opt for assets with lasting value rather than volatile currencies, says one hedge fund manager who has increased his exposure to the precious metal.

“All the fundamentals are in place. If it breaks last year’s high it can go to $1,200 to $1,400 quite quickly,” Pedro de Noronha, managing partner of Noster Capital told Reuters in an interview on Tuesday.

Spot gold rose through the psychologically significant barrier of $1,000 an ounce on Tuesday — its highest since March 2008 when it hit a record $1,030.80.

The precious metal was helped by a weaker dollar and expectations that government measures to revive economic growth will boost demand for basic resources.

“If you adjust the gold price for inflation, to retest the early 80s highs gold would need to be at $1,600. I don’t think this figure is inconceivable, especially given the fundamentals that are behind this move in gold,” de Noronha said.

Nearly 50 percent of the $45 million Noster Capital fund is now exposed to gold derivatives after it raised its exposure last week.

Quantitative easing by governments has increased the attraction of gold, de Noronha said, while leading global currencies are under pressure due to high levels of borrowing.

“People say they hate the U.S. dollar, but is the euro or (British) pound any better?” he said.

“Do you want to own the stock certificates of a country burning cash year in, year out, or own something that, no matter what, you can’t produce more of? “I think it’s a third-quarter or fourth-quarter story — it’s just getting into the time of year when gold performs best. All the stars are aligned for gold to work.”

De Noronha also said he thought the huge rally in equity markets this year could unwind and has a large position in S&P 500 put options, giving him the right to sell at a certain price.

“The market is pricing in 4 percent GDP growth ... and that’s not going to happen.” De Noronha also said he would leave Britain if a 50 percent tax rate for those earning more than 150,000 pounds a year comes into force in April as planned. The move has already been attacked by many in the hedge fund industry. “If it goes to 50 percent I will leave — for Switzerland, Monaco or Miami.”

Editing by David Holmes

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