Q3 2008 was unprecedented in terms of financial market volatility and events, leaving almost all equity markets lower. The gold market did not escape the volatility that these events created but did escape the worst of the declines. Gold bullion declined by -4.8%, but enjoyed a strong September to close the period at US$877.60/oz.Much of this resilience was due to buying of gold as a hedge against uncertainty, moves in the US dollar and fears that central bank cash injection packages could again heighten inflation. However, the performance of gold equities was predominantly driven by negative sentiment in the market, rather than underlying fundamentals or moves in the gold price.As such, the Fund declined by -26.9% over the quarter, although relative returns were negatively impacted by the timing differential between fund pricing and market close. Underweight positions in index heavyweights, such as Barrick and Newmont, hurt relative performance: despite these stocks being large holdings, we are unable to hold an equal weighting to the benchmark due to UCITS regulations.Elsewhere, holdings in platinum miners were also weak, on fears of reduced platinum demand from the automotive industry. In contrast, our position in Lonmin gained on a bid by Xstrata, which was subsequently cancelled. In activity, we sold Lonmin into the said bid, and continue to focus on companies with growth opportunities and those with long life reserves.Newcrest, the largest portfolio holding has a number of characteristics which in our view make it a core investment: the company's earnings are on a rising trend; it is managing costs: and it controls an extensive inventory of gold resources. Long-term fundamentals remain tight, with little sign of any material increase in supply.
1,604.86p
