Some Say Gold Still Glitters in Dark Times

Fenwick's fidelity to gold isn't the only thing that sets him apart. He also has an unusually large holding of bullion, which represented slightly over 25% of the total value at the end of the second quarter. That's a contrast with the more traditional approach employed by money managers who favor the stocks of miners over the metal because of the leverage they provide.

That's because a miner making $100-an-ounce profit with gold selling for $500 an ounce will see margins double if gold lifts only 20% to $600.

Fenwick says that while gold stocks normally lead the metal higher, there have been periods, such as the late 1970s, when the opposite has occurred. He believes we are in another such period now, because there's less high-grade ore available. That means miners must grind more rock to get the same amount of gold. So costs have risen faster than the price of gold, keeping a lid on share prices.

When Fenwick does invest in gold-mining companies, he sticks to small-cap stocks, particularly those that operate in low-risk countries, have proven themselves to be economic and are undervalued.

Right now, there aren't many candidates.

"The juniors [small-cap mining stocks] seem priced to perfection right now on the perception that they will all be acquired by larger gold companies," says Fenwick. "Some will be acquired, but many will not."

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