The recent big rally in gold prices has refocused interest in the yellow metal's role as a store of value at a time when doubts are resurfacing about the reliability of paper, "fiat" money issued by central banks. While gold investors may have been mocked in the past for their attachment to the metal, the mockery has stopped.

Although fears about the effects of government money printing is not the only reason for gold’s price ascent - up around 26 per cent since January to $1,390 per ounce and up from around $280 in the late 1990s – it is a strong price driver. And investors are trying to ride that trend in a controlled way, which is where firms such as Kleinwort Benson come in.

Andrew Thompson, who is head of advisory portfolio management at the firm, recently told this publication that many of his clients have relatively strong asset allocations to gold, in some cases as high as 10 per cent or more. Thompson said he is not a rigid gold enthusiast or “bug” but he takes a bullish stance on the yellow metal, albeit with the flexibility to get out of the market if the trend looks to have run its course.

He recently said – as reported in these pages – that there is a risk of a gold bubble. As a result, the advisory clients at Kleinwort Benson take a measured way of playing the market, rather than adopt a more mechanical “buy and hold” approach.

“Gold is a big theme we have been trading now for the past two to five years. We are massively into gold and we are riding the uptrend,” said Thompson, speaking at its offices in Gresham Street in the City. Kleinwort Benson is in the process of moving from these premises – owned by former Kleinwort Benson parent firm Commerzbank – to a new home in the city’s West End district, where many wealth management firms are now based.

Quantitative headache

The rounds of quantitative easing – or creation of new credit notes by central banks – and appetite for real assets is helping to drive the gold rally, said Thompson.

“Government fiscal and monetary policies [such as quantitative easing] have forced a lot of people from keeping money in the bank,” he said.

He said that a year ago, it was a “deeply unpopular decision at the time” to go into gold in the way Kleinwort Benson did; he said it also might appear “dangerous” to be in gold now at near $1,400 an ounce. As a result, Kleinwort Benson and its clients adopt a “stop-loss” strategy as part of a trend-following approach, taking profits at certain intervals.

“It [the gold market] is not a bubble yet although I suspect it will be at another stage. We set these stops so we capture a meaningful part of this [gold rally] trend,” he said.

Thompson and his colleagues at the advisory portfolio group at Kleinwort Benson have seen their business thrive as investors have chosen to take a more active role in managing their own money.

Thompson joined Kleinwort Benson at a tumultuous time in the financial world - November 2008 - to take up his current role. He has not always worked at the financial markets coalface; after completing a degree in history at King's College London, he spent the mid and late 1990s practising as a litigation lawyer, before switching to the stockbroking world in the noughties. 

Along with his colleagues, Thompson oversees total assets under management in advisory portfolios of £700 million, based on figures for the end of last year (more up-to-date figures are not yet available).

The advisory model of wealth management has seen its fortunes wax in recent years. Some wealthy investors have become disenchanted with seeing the value of their discretionary portfolios plummet in 2008, Philip Harris, head of UK domestic wealth management, said at a conference earlier this year.

At Kleinwort Benson’s advisory portfolio business, many of its clients have worked in financial services themselves and have a high level of financial sophistication and knowledge, said Thompson.

The advisory portfolio business model has its quirks: in terms of growing the advisory portfolio business, there are “issues in terms of scalability” as far as growth is concerned, since it is labour-intensive, Thompson said.

His job requires him to have regular, frequent contact with clients; this is hard to do beyond a certain point if client numbers expand.

But there is no doubt that Thompson relishes close relations with clients, both in helping them achieve their goals and tapping clients for ideas. Right now, gold investing is in vogue. The test of Thompson’s philosophy and clients' own judgement will come if, and when, a decisive turn in the gold trend occurs.