Hedge Fund With 235% Return Says Gold Decline Is Temporary

Raphael Lamm, co-manager of the Australian L1 Gold Fund, which has seen a net return of 235% since its launch last year, views the recent decline in gold prices as temporary. He argues that the underlying forces supporting gold's long-term rally remain robust, specifically pointing to the unsustainable fiscal situations in key markets, such as the US government debt exceeding $40 trillion, and increasing central bank allocations to gold.

Gold has been under pressure, falling approximately 16% since the US-Iran war began in late February, after hitting a record high in January. This decline is attributed to surging energy prices and expectations of Federal Reserve rate hikes, which negatively impact the non-yielding metal. However, Lamm asserts that these headwinds are temporary and expects the main drivers of gold demand to persist or even strengthen in the medium term. Bullion was trading at $4,286.01 an ounce on Thursday evening in Sydney.

The L1 Gold Fund, which manages $1.1 billion, employs a long-short strategy, pairing long positions in gold-related stocks with short positions in gold futures. The fund's 235% return through August significantly outperforms the VanEck Gold Miners ETF's 148% gain and the 55% advance in physical gold prices over the same period. The fund has been actively increasing its long gold equity positions when the gold price dropped below $4,000, maintaining a low- to mid-60% net long position, and will only consider trimming these if further upside expectations materialize.

Lamm and his co-manager Mark Landau have personally invested more in the fund, participating in an entitlement offer that raised A$160 million ($114 million) in August. The fund, listed on the Australian exchange in April, has yielded an 18% net return for clients through August, despite a 6% fall in gold prices. Lamm highlighted the $1 trillion addressable market cap in mid-cap gold equities as a strong area for specialist groups. The fund has also benefited from consolidation in the mining sector, with OceanaGold Corp.'s acquisition of Ausgold Ltd. expected to deliver a substantial gain for the fund.