Gold moving to all-time high, tech stocks flagging in 2024: V. Smorgon

The gold price could soon hit a new record of US$2,500/oz, while tech stocks may struggle with stubbornly high interest rates, predicts family-owned fund manager and gold investment specialist Victor Smorgon Group (VSG).

The firm attributed the surging gold price, which currently sits at around US$2,380/oz, to heightened geopolitical tensions, adding that it is a “key election year for global economies” with a record number of voters heading to the polls this year (estimated at nearly half of the global population).

This, combined with strong central bank buying, should further uplift the value of the precious metal.

The gold price has already increased by more than 22% over the last six months.

“A recession has historically rewarded gold, averaging a price gain of around 13% in the past seven recessions, which implies a price of around US$2,500/oz,” said VSG executive chair and co-CIO of its Global Multi-Strategy Fund, Peter Edwards, and co-CIO Joseph Sitch.

“Together with the fact that gold ETF [exchange traded fund] demand has not matched the rise in the gold price suggests that there is still significant potential upside for gold,” the pair added.

VSG has also forecast a slowing in the tech stock surge. The fund manager revealed it has already moved to reduce exposure to automation stocks within its flagship Global Multi-Strategy Fund (GMF), citing concerns that persistently high interest rates will act as a headwind to technology holdings.

“Expectations of higher interest rates throughout the rest of CY2024 due to limited Fed rate cuts have started to diminish technology sector returns,” VSG wrote in its Q3 FY24 Investor Report.

“The fund will likely maintain a reduced allocation to the automation sub-portfolio until a time when the path for global interest rates becomes clearer and geopolitical volatility subsides.”

The fund has reduced its allocation to automation stocks to roughly 8.5% from around 11.5% after profit taking.

According to VSG, the fund will also look to reduce its exposure to its alternatives and capital markets strategies “with a view of rotating into a basket of high-quality companies that have limited debt, currently produce cash flow, possess good economies of scale, and operate in industries where there are high barriers to entry and secular industry tailwinds”.

While cooling inflation and a still strong US labour market augur well for a “soft” economic landing, VSG said there is no guarantee the US and the world economy will avoid a crash.

“Despite this market optimism, we maintain the view that the likelihood of the Fed [Federal Reserve] steering the economy to a soft landing with interest rates above 5% is uncertain.”

“Historically, the Fed has avoided a recession only twice in the past nine tightening cycles over the past five decades.”

VSG said it has been “well-placed in gold for some time now”, reaping the benefits of gold’s record run.

The Victor Smorgon Partners Resources Gold Fund returned 13.9% in March, according to the firm’s latest report, and 38.2% since its May 2020 inception, outperforming the ASX Gold Equities Index by 43.0%.

Meanwhile, the GMF returned 5.4% in March and 19.4% in the financial year to date.

VSG boasts that the GMF portfolio strategies have delivered an annualised return of 40.7% since the January 2019 inception.