Gold equities were likely to significantly outperform the gold price in the second half of 2009, Investec Asset Management fund managers specialising in commodities and resources said on Wednesday.

Speaking during an international conference call, global commodities and resources head Bradley George said that, while its outlook for the gold price was positive, the company currently favoured investments in gold companies over those in the physical metal, or gold-backed exchange-traded funds (ETFs).

It expected a 20% to 30% return from gold equities relative to their current valuations for the balance of the year, compared with an upside of between 10% and 15% on the price of the precious metal itself.

The company, which currently has more than $2,5-billion invested in commodities and resources equities, expected the precious metal to trade between $880/oz and $1 100/oz during 2009. Gold was trading at close to $940/oz on Wednesday.

George argued that gold-miner margins were benefiting from cost deflation and that average production costs had fallen from $450/oz in 2008 to below $400/oz as a result.

"Therefore, from a valuation and an upside perspective, we have our portfolios more tilted towards gold equities rather than gold itself," George revealed.

In the short term, gold was also likely to trade more as a currency than as a commodity, and downside risk lay, therefore, in dollar strength.

In the longer term, Investec Asset Management believed gold would perform relatively strongly whether the current monetary easing, designed to stimulate economies such as the US, succeeded or not.

If the policy of printing money worked, there would be inflation, which had traditionally been "good for gold". If it failed, and there was a prolonged recession, gold could also rise as it did in the "deflationary 1930s".

George saw little potential for price disruption arising from either central bank, or International Monetary Fund (IMF), sales. He noted that reserve banks had sold only 85 t of their 500 t disposal quota, under the Central Bank Gold Agreement, for the period that would end on September 30,.

Further, banks in Asia and the Middle East were likely to mop up any gold arising from the mooted IMF sale.

PLATINUM VS. PALLADIUM

The group was also relatively bullish on the outlook for platinum, warning of possible "physical tightness" as a result of currency-related pressures on South African producers - the rand, which had weakened recently, had been one of the best performing currencies in the world in 2009.

It saw the metal trading between $1 150/oz and $1 350/oz during 2009 and expected the price to draw support from the stabilisation of the automotive industry, the restarting of production and the end to destocking in that sector.

Physical-metal-backed ETFs had already helped platinum and the potential of a US ETF listing "could be positive" for the price.

George was less optimistic about the prospects for palladium, asserting that the inventory position was not as "tight" as that for platinum, with the Russian stockpile still a factor and the metal having no jewellery-investment underpin.

"So, overall we have a more convicted view toward platinum as against palladium," George said, adding that the EFT investor had generally favoured platinum over palladium.

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